This free page is dedicated to a long time PUG SMA subscriber (Denali92) who has compiled and analyzed a large amount of good historical data on market turning points as it relates to FOMC (Federal Open Market Committee), Monthly Option Expiration (OPEX), Monthly Non-Farm Payroll (NFP) and Holidays.

Mid December 2017 Turning Point Preview covering Opex, FOMC & the Santa Rally (as of mid day on opex Tuesday, December 12^th )

While it may not seem like it, December and the late employment report have so far followed their fairly distinct and normal patterns of:

• An early December Low – as seen quite strangely after that sharp hour long sell off on Dec 1^st down to 2606 on the SPX
• Then a rally (normally post employment) and a pullback during the 2^nd week of December before a rally in to opex week – this was accomplished with the Monday high at SPX 2665 and the Wednesday low at 2625 last week.
• Lastly, there was the rally in to the late employment report (as oddly falls rarely continue in to late employment reports) and the rally in to opex week which has now occurred for 15 consecutive months – which is just amazing!

Despite following the typical pattern, I would not say that it was easy at all, at the time, to identify those turns as this persistent market is beyond impressive. If the December pattern continues then expect:

• The opex period to be a high or much more likely a double turn with a high and a low (In 2016, there was a Tuesday high and a somewhat surprising Wednesday low. In 2015, there were Monday & Friday lows and a Thursday high)
• Rally in to year end or at least post Christmas (In 2016, there was a pullback from Dec 27^th to Friday, the 30^th) Topped significantly on the 29^th in both 2014 & 2015)

December FOMC and Quad Opex Week

The December opex period almost always produces a good buying opportunity. The only year since 2007 that it has not produced a good buying opportunity after what is generally an FOMC inspired pullback was in 2012 when the SPX topped on Opex Wednesday and fell sharply till Dec 31^st on Fiscal Cliff concerns.

The FOMC inspired pullbacks generally start post the FOMC meeting – though in 2016 the SPX topped the day before and was weak all of FOMC day – though that was it for the pullback and the market then had a mild Santa rally to a slightly lower high. Here are the most recent mild FOMC inspired pullbacks that then started the Santa Rally:

• 2016: Opex Tuesday (day before FOMC) to Opex Wednesday (29pts)
• 2013 Opex Tuesday (day before FOMC) to the infamous 1 minute spike down low post FOMC on Opex Wednesday (25 pts)
• 2010 – Opex Tuesday (FOMC Day) till Opex Thursday (small, but distinct 15 pt pullback)
• 2009 – Opex Wednesday (FOMC day) till Opex Friday (23pts mostly Opex Thursday down)

The Santa Rally

While I believe the Stock Trader’s Almanac has a different definition, the Santa rally is real and normally starts from some time as early as Opex Tuesday (2014) to the Monday post opex (2011) and lasts till at least the trading day after Christmas, but like in 2010, it can last well in to the next year. The details are below. Since 1998, there have been 14 Santa Rallies and 5 Santa falls. The most recent fall was in 2012.

I have also included the holiday turn info below.

The Persistent Market – when might it end?

I will admit to being surprised by the continued persistence of the market, but I respect it.

There is not a lot of history to go on since 1998, but there is enough to at least highlight that while the current market is unusual, it is not totally unique. There have been 11 persistent market periods since 1998 with no touch of the 20 week MA and no daily OS periods for at least 3 months. 8 of those occurred during this bull market. This is the second time that the market has immediately resumed being persistent after a brief correction. Though the 25 day 9.2% correction in Jan 2010 was much more substantial than August’s 13 days 2.8% correction.

Here is what occurred with the persistent markets that started in Q3 like this most recent one:

• 30-Sep-03 to 5-Mar-04 (Mar employment) then corrected till August
• 18-Jul-06 to 14-Dec-06 (Dec opex) – a mild 25 day correction, but the SPY got OS
• 8-Jul-09 to 11-Jan-10 (Jan opex) and corrected sharply till 5-Feb-10
• 25-Aug-10 to 18-Feb-11 (Feb opex) and then corrected 7% in 26 days
• 9-Oct-13 (not quite Q3) to 15-Jan-14 (Jan opex) and then corrected 6% in to early Feb

 Based on this limited data set, it would seem that the January opex period (with 3 of the 5 persistent periods ending during or before it – also note 4 in 5 of the persistent periods ending during opex) is the one where the market’s persistence could be curtailed. (emphasis on the could)   It is something to at least consider when thinking about the market.

 Current Conditions

The current conditions are off the charts!

• On a monthly basis the SPY has an RSI of 91 and an MFI of 100!
• On a weekly basis, the SPY has an RSI of 89 and an MFI of 92
• On a daily basis, the SPY has an RSI of approximately 78 and an MFI of 66

Markets can get more overbought than one can imagine and there is no edge to these conditions. The market will do what it wants!

 Note: In addition to the FOMC on Wednesday with the press conference, the ECB meets on Thursday before the market opens.

Bottom Line

I am reluctant to publish turning point previews during super persistent market periods as I do not want to give the impression that I am always calling for tops and pullbacks. This is the very reason I did not publish a Thanksgiving preview as a minor top and pullback seemed less likely than normal.

• The FOMC meetings almost always produce market turns – the last time there was an FOMC rally continuation was Jan 2013. There has not been an FOMC press conference meeting yet without at least a minor turn. Sept 2017’s 21pt 5 day pullback was one of the smallest (though June 2017 just had a 1 day 25pt pullback too)
• The Santa Rally is real, so if the FOMC meeting does produce a pullback then the Santa Rally should materialize after the pullback ends
• While it is a totally outlier scenario, given the tax bill reconciliation talks, one can not forget 2012, the market was very well bid after the November opex bottom, but the market peaked on opex Wednesday above the upper daily bollo band and fell to below the lower daily bollo on Dec 31^st thanks to Fiscal Cliff concerns   – it is an outlier scenario, but something to at least remember.

Overall, history can only provide so much insight when the markets are super persistent. Most of the normal historically expected turns have still been occurring (Rally in to the late employment report, early December low, Nov opex buying opportunity), but not all of them (Thanksgiving holiday)

I will be back only when something historically interesting shows up,

-D

December Santa Rally and Holiday turn Info

1. 2016   Brief Post Christmas pullback
   • Rally Start: Near the close on Opex Tuesday, Dec 14^th
   • Rally End: Tuesday, December 27^th (at a slightly lower high for the month)
   • Traded in a narrow range from the 15^th to the 27^th and then spent 3 days going down in to a Dec 30^th bottom
2. 2015 – Post Christmas Top
   • Rally Start: At the close on opex Day, Friday, December 18^th (higher low, but OS)
   • Rally End: Tuesday, December 29^th
   • Short sharp rally from the lower daily bollo to the opex week highs and then a collapse in to Jan
3. 2014 – Post Christmas Top
   • Rally Start   Tuesday, Dec 16th
   • Rally End Monday, December 29^th
   • Market then fell until Tuesday, Jan 6th
4. 2013 –   Pre New Year’s Top
   • Rally Start   Wednesday, Dec 18th
   • Rally End Tuesday, December 31^st at the close
   • Market then fell until Monday, Jan 6th
5. 2011 –   No holiday turns   – minor 20pt pullback from Dec 27^th to 28^th
   • Rally Start   Monday, December 19^th at close   (post opex)
   • Rally End February, 29^th, 2012
   • Market just kept on rallying at the beginning of the year
6. 2010 –   No holiday turns just slow motion rally until the end of January
   • Rally Start   Thursday, Dec 16th
   • Rally End:   Friday, January 28^th, 2011
7. 2009 –   Bottom at the close on New Year’s Eve
   • Rally Start   Friday, December 18^th
   • Rally End: Tuesday, December 29^th
   • Market erased most of the Santa rally gains in a sharp New Year’s eve fall, but then rally resumed with a gap up post New Year’s
8. 2007 – Top post Christmas
   • Rally Start   Tuesday, Dec 18^th   (opex Tues)
   • Rally End Wednesday, Dec 26^th     (near the close)
   • Rally ended post Christmas and market fell until post January opex
9. 2004 –   Start of the year top
   • Rally Start   Monday, Dec 20^th (Mon post opex)
   • Rally End Monday, Jan 3^rd, 2005
   • Market then fell Jan 24th
10. 2003 –  Persistent rally with no holiday turns
    • Rally Start: Wednesday, Dec 10^th   (Wed post employment)
    • Rally End:   Monday, Jan 26^th, 2004
11. 2001: Some volatility around New Year’s holiday
    • Rally Start   Friday, Dec 14^th
    • Rally End: Friday, Dec 28^th
    • Market then fell sharply on Dec 31^st and Jan 2^nd, but bottomed on the 2^nd and rallied until Monday, Jan 7th
12. 2000 – Volatile around the New Year’s holiday (5% plus range)
    • Rally Start: Thursday, Dec 21^st (Thurs post opex)
    • Rally End: Friday, Dec 29^th
    • Huge swings at the end of the year – Market fell hard on the two days either side of New Year’s then rallied hard on Tuesday, Jan 3^rd only to top on the 4^th and retrace the rally until the 8th
13. 1999 – Opex Wed, the 15^th (Dec 30^th)
    • Rally Start: Wednesday, Dec 15^th   (opex Wed)
    • Rally End:   Monday, Jan 3^rd
    • Market rallied above upper bollo from Dec 23^rd and topped at the start of the year and fell to below lower bollo on Wed, Jan 5^th
14. 1998 – Rally resumed on first trading day of the New Year
    • Rally Start: Monday, Dec 14^th   (Opex Monday)
    • Rally End Wednesday, Dec 30th
    • There was a decent pullback from the 30^th until Monday, the 4^th and then rally continued until Friday, the 8th

Decembers with NO Santa Rally – fell in to the holidays

1. 2012 – New Year’s bottom at the open on the 31st

1. • Start of Fall: Wednesday, 19th
   • End of Fall: Monday, December 31^st   (at open)
   • Market then rallied till February, 19^th, 2013

1. 2008 –   Bottom two days after Christmas

1. • Start of Fall: Wednesday, Dec 17^th (opex Wed)
   • End of Fall: Monday, December 29^th
   • Market then fell rallied until Tuesday, Jan 6^th, 2009

1. 2006 –   In the midst of a 4 week pullback with limited turns

• Start of Fall:   Thursday, Dec 14^th   (Opex Thurs)
• End of Fall: Friday, December 22^nd (Friday before Christmas)
• Rally post Christmas lasted for two days and then market pulled back until Wed, Jan 10^th, 2007

1. 2005 – Bottom at the open of the year

1. • Start of Fall:   Wednesday, Dec 14^th (Opex Wed)
   • End of Fall: Tuesday, Jan 3^rd , 2006
   • Minor Counter trend rally from the 20^th – to the 27^th, but market did little

1. 2002 – Bottom on New Year’s Eve

1. • Start of Fall: Tuesday, Dec 17^th (opex Tuesday)
   • End of Fall: Tuesday, Dec 31^st   (New Year’s Eve)
   • January rally lasted until Monday, Jan 13^th

Post October opex tops, the end of an hourly buy signal drought and some data on rallies in November   (as of mid morning on Thursday, October 26^th)

I was going to write about the tendencies for the market after the end of an hourly buy signal drought ending in the opex period (like the tendency to go lower till the next day or a few more days – …) but given the rally from 12:30pm yesterday and looking more closely at October opex tops and how November, especially early November generally trades provided me with something that is potentially more interesting…

November has very much been a month for rallies through the years – with just 2007 being the one year that did not see ANY rally of any substance until the end of the month   (2000 was another year where November was down – but first there was a bounce until Monday, Nov 6^th – the day before the election) One of the reasons that November has been a rally month is that the market has generally gotten oversold to very oversold sometimes well below the lower daily bollo bands (like during October Opex 2014) that the market is primed and ready to rally by the time November rolls around.

• In fact, there have been ONLY two years since 1997 that the SPX did not trade at or below its lower daily bollo band between September opex and the end of October. I have mentioned these two years frequently in the last month. They are 2006 and 2010 – both years where the market spent a period of time below the 200 day MA during the summer.
• EVERY other year since 1997 (18 years in total) has seen the market trade to the lower daily bollo band
• Note: I mention 1997 as well in my research as it had a LATE collapse in October down to the 200 day MA (well below the lower bollo) which ended on Tuesday, October 28^th.

The reason I was looking at this was the post opex pullbacks

• 2010 just had a 2.2% (27 SPX pts)1 day pullback post opex that ended on October 19^th and then the market rallied in to November and topped on employment Friday well above the upper bollo on good employment news and the carry over on the Bernanke op ed from the previous day
• 2006 was a bit different – it peaked the day after the FOMC (Thursday post opex) on October 26^th and the SPX then fell 2.4% (34 SPX pts) in 8 days until employment Friday, Nov 3^rd.

Overall, the October opex tops (there have been 9 of them since 1998) have all been essentially pullbacks or the final stage of declines (like in 2016) and not the start of major market slides   as the longest decline before a significant bounce or bottom from a post opex top was the 12 day 6.6% (72 pt) decline in 2009.

• The Max decline was the 6.6% in 2009 and the minimum was the 2.2% in 2010. The median decline was 3.2%
• The longest pullback was the 12 day 2009 pullback and the shortest was the 2010 – 1 day pullback. The median pullback was 8 days
• Overall, just 3 of these pullbacks continued in to November: 2006 (Fri, Nov 3^rd), 2009 (Monday, Nov 2^nd) and 2016 (Friday, Nov 4^th)
• Note: I do not include 2008 in these numbers as it was a super volatile opex period with 3 MAJOR turns.

My primary point is that based on history, this move down that started on Monday should not be a long lasting one (unless this is a repeat of 2007 which does not seem likely). In general, the market likes to rally in to early November, but not always. Since 1998, here is what happened in to early November.

• 6 times the market topped in late October and fell in to early November – only the 2007 was a severe drop (and the market had ended its post opex bounce on Fed day, Oct 31^st)
• 7 times the market rallied in to early November – generally near the employment day or the election
• 6 times the market was off higher until late November with essentially no pullbacksOverall that is 13 rallies in to November and 6 falls in to November, so the odds favor a late October pullback bottom and rally in to the start of November.

A closer look at the data (which is included below) is useful as these late October dips are not uncommon. The question is whether this market will dip in to early November and then rally (like 2006, 2009 and 2016) or whether the market already bottomed yesterday at the 20 day MA or will soon and then will rally in to next week and the FOMC.

• The historical track record of 13 out of 19 instances and the current persistence of the market would support the argument that yesterday’s low at the 20 day MA was a sufficient pullback – this is effectively what happened in 2010 as well. (just a short sharp pullback and continued rally)
• While the end of the very long hourly buy signal drought and the 2006 persistent market analog would suggest the market could pull back in to next week – possibly just until Monday or Tuesday due to the tendency to rally in to the FOMC meeting (In 2017 – up in to the Fed meeting 4 times and down twice)

I do not have a strong view. With its persistence, the market has been doing something very rare since the August opex low, especially as the market did not trade below the 200 day MA for a period of time this summer like it did in 2006 and 2010.

Unless there is something to add in the next few days, I will wait until post the FOMC to provide my next commentary as there is just not a lot to say until it is clear that the market’s persistence has paused.

For now, I am just intrigued to see how long the market’s persistence will persist and whether the SPX will continue to run along its upper weekly bollo band or whether there will be a visit to the lower daily bollo in the next month or so.

Enjoy the last weekend of October,

-D

Detailed Data

Generally the market rallies in to early November, though not always

• 6 times the market topped in late October and fell in to early November – only 2007 was a severe drop
• 7 times the market rallied in to early November – generally near the employment day or the election
• 6 times the market was off higher until late November with essentially no pullbacks

Topped in late October and fell in to November

1. 2016 – Topped on Monday (post opex), Oct 24^th and fell to a final low for November on Friday, Nov 4^th (at 200 day MA, below lower bollo)
2. 2013 – Strange one – Topped on Wed, October 30^th , pulled back a till Friday, Nov 1^st and then double topped on Thursday, Nov 7^th (pre a late employment report) and fell ALL day and bottomed at the close at the 20 day MA – low for the month
3. 2011 Fell from Thursday, Oct 27^th until Tuesday, Nov 1^st at 20 day MA, then bounced till the 8^th before falling until post Thansgiving
4. 2009 Fell from Wed, Oct 21^st (post opex) until Monday, Nov 1^st and then rallied all month
5. 2007 – Topped on Fed day, Oct 31^st and fell most of November
6. 2006 (persistent market in October) Pulled back from Oct 26^th until Friday, Nov 3^rd and then headed higher again

Rallied until early November

1. 2015 – There was a MAJOR bottom below the lower daily bollo on Tuesday, Sept 29^th, the market surged higher in October with just a series of super small pullbacks that ended on Wed, Oct 14^th, Wed, Oct 21^st and Tuesday, Oct 27^th until the SPX topped for Q4 on Tuesday, November 3^rd (fell to Monday, Nov 16^th)
2. 2012 – Rallied from Oct 26^th (remember Hurricane Sandy) until Friday, Nov 2^nd (employment day)– but did not start falling till Wed, Nov 7^th (post election) – bottomed on Opex Friday, the 16th
3. 2010 (persistent market in October) There was one small pullback from Monday, October 25^th at the upper bollo until Wednesday, October 27^th (bottomed 3pts above 20 day MA) then the SPX had one final burst above the daily bollo (Bernanke op ed) on Thursday, November 4^th & Friday, the 5th (employment day) and then fell away until Tuesday, Nov 16^th – but did not start rallying again till late November
4. 2008 – Rallied from Tuesday, Oct 28^th until Tuesday, Nov 4^th (election day) then fell away
5. 2003 – Last pullback ended on Friday, October 24^th and then SPX then rallied until employment day, Nov 7^th and then fell away till Nov 21^st
6. 2002 – Pulled back a bit until Tuesday, October 28^th and then rallied until Wed, Nov 6^th and then pulled back for 7 days
7. 2000 Last pullback ended on Thursday, October 26^th. SPX then rallied until just before the election on Monday, Nov 6^th and then fell away

Rallied till late November or later

1. 2014 – MAJOR Opex collapse bottom was on opex Wednesday, October 15^th. The SPX then rallied persistently until Friday, Nov 28^th
2. 2005 – Final pullback before the 200 day MA was breached On Friday, October 27th – SPX never really pulled back all of November until early December
3. 2004 – October low was on Monday, October 25^th at the lower bollo. There was then a strong rally all of November – did not touch 20 day MA until Nov 29^th
4. 2001 – Last pullback ended at lower daily bollo on Tuesday, October 30^th and the SPX then rallied until Nov 27^th
5. 1999 – Last minor pullback ended on Wednesday, October 27^th (below 200 day MA) and the SPX then rallied all of November until pullback started on Friday, Nov 26^th
6. 1998 – Last pullback ended on Wed, Oct 28^th (just below the 200 day MA) and the SPX then tallied all of November and never touched the 20 day MA

Opex Preview for October 2017 (Preview as of close of business on Friday, October 13^th, 2017):

I always tell myself to try to “Expect the Unexpected”, but the price action since the pullback low on Monday, September 25^th has been quite remarkable. There is NO PERIOD of this whole bull market since the bottom in 2009 that compares to the current period.   As the web is now filled with various comments about the “relentless bull” and the “impervious market”, I will not re-hash many of the points that have been made or the records that have been broken in the last few weeks.   I will admit I am really surprised by the price action in the last 3 weeks – despite all of my respect for the “persistent” bull.

The most remarkable aspect of this current bullish run for me is that there STILL has not been a 10 min buy signal in the MIDs since September 14^th. That is 32 days now.. The previous longest period was 22 days in May – June 2016. What this means is there has been virtually NO WEAKNESS even very short term for almost 5 weeks now – remarkable.

• Even during the most persistent market periods in 2010 and 2013, the longest period without a 10 min buy signal was between 13 and 17 days.
• The MID has now been without an hourly buy for 60 days. The longest period without an hourly buy was in Q1 2012 which had an 82 day streak. The next longest streak was in Summer 2009 at 56 days. Interestingly during the 82 days streak in 2012, there were still 29 10 minute buy signals, while there have just been 7 10 minute buy signals since the August 21^st bottom

Clearly, the market is due for a pullback based on many different indicators, but now that everyone is looking for a pullback – one must wonder whether that view has become too prevalent.   For now, I am just going to stick to providing the historical perspective. There are a number of historical points that argue for just a minor opex inspired pullback and then a continuation of the rally and there are just a few that argue for a more significant top (assuming – the market did not MAJOR TOP on Friday, Oct 13^th – Cobra shows the stats show a 71% probability of a higher high ahead, so for now, I will assume that the market did not top this past Friday – though it is always possible )

REASONS for a top and pullback – but nothing significant

• October opex is not normally a month for MAJOR tops unless the market is already in a bearish trend.
• The breach of the upper weekly bollo band. (see below) While there have been a few notable tops, there is not a strong edge suggesting a top. It occurred twice in 2016 – the one in July, the market kept going higher. In December, the market stalled a bit.
• After Employment rally continuations, the market does not often MAJOR TOP during the opex period. Just 3 out of 17 instances, so a minor top – quite likely during opex week – and then a small pullback seems the most likely outcome from this one study. The last employment rally continuation was in Feb 17. There was no turn during opex either, but the market did MAJOR top on March 1^st.

REASONS for a more substantial top and pullback

• 2^nd Half of the year TOP from time spent at / above upper weekly bollo. I have provided this study previously and it is probably the best reason for the market having a fairly substantial time and price based pullback, especially as there has been no substantive pullback in all of 2017
• Long Period without an hourly Buy signal – IF there is a Buy signal during the opex period, this study suggests there will be a bounce the day after or a few days after the buy signal, but then the market will go lower again (See below for more detail)
• Super long period without a 10 min buy signal   (See Below) – Overall, this study strongly suggests a major top is near and when the buy signal draught ends in the opex period then 6 out of 9 instances had a MAJOR top occur shortly before or after the signal.

October Opex

The October opex period is GREAT for bottoms (2014, 2007, 2000 and 1999) and good for MAJOR TOPS in Bearish markets (see 2008, 2012 and 2016), but otherwise it has a mixed track record. There have been three rally continuations since 1998 (2015, 2006 and 2002)

There has only been ONE MAJOR OPEX TOP in a bullish, rallying October and that was in 2009 on the Wed post opex. Otherwise, there have been a number of minor tops post opex (2013, 2011, 2010) in recent years.

CURRENT Conditions

The market is clearly very OB on a number of levels – BUT OB before opex week starts does not automatically mean that the market will decline

• Monthly – SPY RSI is 87 and MFI is 83. The last time the SPY had these levels was in June 1996. The advance has been VERY steep, but that has yet to matter in 2017
• Weekly –   SPY RSI is 78 and MFI is 68. The Weekly stochastics are at 98% – this is the highest since August 2016 – the market stalled on the Tuesday post opex and really did very little till the sharp fall on the 2^nd Friday of September.   High weekly stochastics going in to opex week are NOT a sell signal. Closed above the upper weekly bollo (2545) for the 2^nd week in a row
• Daily – SPY RSI is 75 and MFI is 90. The last time the MFI (14) was this high was last November.
• MDY Daily – The daily MFI is 82. It has been OB Since September 25^th, which means as of Monday it will have been OB for 22 days. The longest period since 2007 is 25 days (Jan 2012)

FOR MDY OB, it is somewhat reasonable to assume that this MDY OB period is near an end – given the longest period since 2007 was 25 days and MDY has been OB for 22 days so far.   18 of the 45 OB periods since 2007 ended during the opex period. 9 of these 18 times the market MAJOR Topped during the opex period and 9 of the time the market just had a minor top.

BOTTOM Line:

The bullishness and persistence of this market keeps surprising most participants (myself included). It has defied the normally weak historical tendencies of late September & early October. A top and pullback of some sort is overdue, but that was also the case post September opex and the FOMC meeting and post October employment.

• For now, one must expect some of the historic streaks like the period without 10 min buy signals or hourly buys in the MID to end…. But I must admit I expected them to end 2 weeks ago…. Eventually, it will happen, but I am no longer predicting it to occur imminently.

Given the market is not acting like it normally does in this September – October period, for now, I am watching it carefully to try to discover if there is an analog that is it following. For now, I do not have one, but as soon as some more clues are revealed, I will try to come back with a more insightful post.

For now, I am just surprised and neutral as I can see reasons for the market to MAJOR top and I can also provide plenty of support for just a market stall and a minor top and pullback before the rally resumes.

For now, I am just awaiting more clues as to the market’s opex intentions. It will be interesting to see whether the SPX rallies in to Opex for the 13^th consecutive month – which is remarkable as well.

-D

p.s. I am on the fall break with my kids, so the commenting will be light.

DETAILED Studies

Long periods without Hourly Buy signals (30 plus days) that end during the opex period

• A little less than half (10 out of 23 occurrences) of the extended periods without hourly buy signals ended during the opex period

There was always a BOUNCE after these long periods without a buy signal, but only twice did that mean the correction had ended. The highest probability outcome is a bounce either the next day (30% chance) or a few days later (30% chance)

1. Dec 16 – (Opex Wed signal after 42 days)Market bottomed that day for a bounce, but then went lower in to the end of December
2. Jun 16 – (Opex Monday after 32 days) Market went lower until opex Thursday and then bounced for a week before going lower – briefly – on Brexit vote
3. Nov 14 – (post opex / on Friday post Thanksgiving after 44 days) Market bounced the next day and then went lower after the bounce in to Dec opex
4. Feb 13 (Wed post opex after 55 days) – Market bounced the next day, but then went to the lower bollo band two days later
5. Dec 12 (Thursday post opex / post holiday) – Market bottomed 2 days later and rallied strongly
6. Sep 12 (Opex Tuesday after 47 days) – Had MAJOR topped on the previous Friday – did not bounce until Wed post opex)
7. Jul 11 (Opex Monday after 31 days) – Had MAJOR topped the Thursday before – bounced on the Monday post opex)
8. Apr 10 (Monday post opex after 31 days) – Bottomed that day and rallied for one more week before MAJOR Topping
9. Mar 10 – (Monday post opex after 42 days) – Bottomed that day and rallied
10. Jun 09 ((Opex Tues after 34 days) – Bounced the next day and then went lower until the Tuesday post opex and then bounced for a week

*************************

Periods without a 10 min BUY signal of 13 days or GREATER

Extended periods without ten min buy signals (10 min RSI (9) below 25) for MDY since Spring 2009.

• Total of 1,322 signals. On average they occur every 2 days. 10 min buys and sells are evenly distributed. There have been 1350 10 min sell signals since Spring 2009 – including 19 since the last buy signal occurred
• 20 previous instances of 13 days or greater – Here is what happened to the MID
  • MAJOR Topped the day before 5 times (Jun 10, Jul 11, Dec 14, Apr 16, Jun 16) or two days before twice (Jan 15 & Apr 17)
  • MAJOR Topped that day 1 times (Feb 11)
  • MAJOR Topped the next day – 3 times (Sep 11, Sep 13 and Jul 15)
  • MAJOR Topped, but took some time – 2 times (Both post Jan opex – Jan 10 – 1 week & Dec 13 – 3 weeks)
  • Bottomed Shortly afterwards – 7 times (Dec 10, Nov 12, Mar 13, Feb 14, Jul 16, Sep 17) – the key thing with ALL of these instances EXCEPT March 13 is that the market had a major bottom that month or late the previous month

There are 9 of these 20 periods that ended during the opex period. Again, the majority of these had MAJOR TOPS associated with them. Just 3 of the 9 saw the market continue to rally out of the opex period

• • MAJOR Topped the day before 1 time   (Jun 10)
  • MAJOR Topped that day 1 time (Feb 11)
  • MAJOR Topped the next day – 3 times (Sep 11, Sep 13 and Jul 15)
  • MAJOR Topped, but took some time – 1 time (Post Jan opex – Jan 10)
  • Bottomed Shortly afterwards – 7 times (Dec 10, Mar 13 and Feb 14

*********************

SPX closing above upper weekly Bollo the week before opex or trading above the upper weekly bollo during opex

The SPX closed the week before opex week above the upper bollo band or traded above the upper bollo during opex week is a reasonably rare technical condition as it has happened 20 times since 1998. The SPX breached its upper weekly bollo band twice in 2016 around the opex period. In July 2016, there was no impact and in Dec 2016, there was a mild pullback

While the daily bollo band breach seems to have some significance at times, the weekly bollo band breach appears to have a lot less impact. While there are a few notable MAJOR Tops, the stats do not indicate any significant risks to the market from this one technical indicator, as 7 out of 20 times, the market rally continued.

This is generally the case with upper weekly bollo band breaches. It can have an impact, but there is no strong historical correlation between MAJOR tops shortly after a weekly bollo band breach.

***************************

An employment rally continuation occurs when there is no turn of any significance between the Wed before and the Wed after employment.

There are definitely not always turns for every turning point and RALLY CONTINUATIONS for employment are quite common when the market has made an OVERSOLD bottom, especially during opex week or post opex. Since 2007, there have been 17 rally continuations for employment. The 18^th just occurred somewhat surprisingly for October employment.

What has then happened for the opex period following an employment rally continuation?

• The stats show that the market generally continues to rally with only 3 MAJOR TOPS in 17 instances.
• The most likely outcome is a rally in to opex week and then a sharp pullback for a few days and then a continuation of the rally

What has then happened for the opex period following an employment rally continuation?

• Rally Continuation – THREE   Jul 16 (early Sept top), Jan 12, Apr 07 (Early June top)
• Rally continuation, but a top shortly after the opex period – THREE   Feb 17 (March 1^st MAJOR top) , Nov 14 (Dec 5^th MAJOR top),   Feb 12 (29^th Feb – minor top)
• Rally in to opex and then opex / post opex pullback bottom
  1. Mar 13   (Opex Thurs top and Tues post opex bottom),
  2. Jan 11 (Opex Tues top and opex Thurs bottom),
  3. Dec 10 (Opex Tues top and opex Thurs bottom),
  4. Oct 10 (minor top on Monday post opex and bottom on Tues post opex – 2.2% pullback),
  5. Sep 10 (Tues post opex top – FOMC Day and Thurs post opex bottom – 2.3% pullback),
  6. Apr 10 (Opex Thurs top to Monday post opex bottom – 2.5% pullback),
  7. Mar 10 (Opex Wed top and Mon post opex bottom – 1.7% pullback)
• Minor tops and a pullback for a week or more – None
• Major Tops – THREE Sep 13 (Opex Thurs post FOMC), May 13 (Wed post opex), Feb 11 (opex day)
• Other – ONE   Sep 12 (MAJOR Top on Friday before opex and then minor bottom on Wed post opex)

October 2017 Turning Point Preview (as of close of Business on Monday, October 2^nd, 2017 )

Given the melt up in the RUT and the MID in the last week, I seriously considered not writing this preview as the markets right now is off on one of its every year or so melt up or melt downs (Nov 2016, Jan 2016, Aug 2015, Oct 2014, etc…) When these events occur, some historical perspective is healthy, but in most instances these market moves go further and last longer than normal historical indicators would suggest – such as the time between 10 min buy signals on the MID that I have mentioned a few times, so I am not sure this preview will be that instructive as there is no real historical edge right now. (sorry for that….)

The month of September 2017 was – to me – easily the most impressive month of this persistent bull market, given the normal historical characteristics of the month of September. It had one significant down day – the Tuesday, September 5th post Labor Day – Friday high (post employment top) to Tuesday low (post holiday bottom) drop of 34pts and that was it! As for the RUT, the last time it made a low below its previous day’s low was all the way back on September 7^th!

The SPX did follow its historical tendencies to rally in to the September FOMC meeting, but the thing it did not do in September (which history suggested was highly likely) was to top post opex / post FOMC and pullback. Yes, there was the minor stall from the 20^th – FOMC day – at 2509 to Monday, the 25^th’s low at 2488 – but that 21pt pullback is nothing in the context of some of the September post FOMC tops.

While August was definitely a month to buy, September was definitely NOT a month to sell), so now the question becomes – what will October bring?

Overall, October has been THE most critical month for Turns (The full list since 1987 is published below)

Since 2007, the month of October (especially if you include late September 2015) has really been all about when to buy:

• Years of good lows in October: 2009 (October 2^nd), 2011 (Oct 4^th), 2013 (Oct 9^th), 2014 (Oct 15^th), 2015 *** (Low was in on Sept 29^th and tested on Oct 2^nd)
• Years with trading lows and opex tops in October and more substantial bottoms in November: 2008, 2012 & 2016   (all election years) and 2009
• The persistent rally year (without even a touch of the 20 day MA): 2010 (which spent most of the summer below the 200 day MA)

Just by looking at the above list, there is not a single significant top – though there were some MAJOR bottoms and some scary times. Of course, people will always state 2007 as the October to scare everyone and yes it was a MEGA top, but the slide post the top on October 11^th, 2007 was fairly gentle until November rolled around. In fact, the market bottomed on the Monday post opex and had a strong bounce in to the end of the month.

• As people will mention it, there is some truth to the fact that Octobers ending in the year 7 do have some scary drops -2007 (The October MEGA Top), 1997 (The Asia mini crisis slide of 13% from Oct 8^th to Oct 28^th which was a great buying opportunity), 1987 (the most famous crash – which was also a great buying opportunity). Additionally, October 1977 did see a drop of 4.3%, but nothing too scary and October ’67 had a drop of 3.4% and then a decent low in November

With the persistence of September, there are really few historical comparisons to possibly suggest what might happen in October. Here are the months since 1997 that had steady rallies in September in to October (note: 2007 was much choppier until it bottomed on 10-Sep-07) and what occurred next

• 2010 saw a continued rally and little volatility until after the employment report in November
• 2006 After a brief pullback from Sept 4^th to Sept 11^th – SPX hugged the upper daily bollo until 26-Oct when it topped and pulled back to just below the 20 MA on 3-Nov)
• 1997 (did have one brief drop to near the lower daily bollo from Sept 5^th to Sept 11^th), but then continued higher till the Oct 7^th top at 983 which culminated in the low at the 200 day MA On Oct 28^th at 855.There really are not that many October tops – which is to be expected given historically how September has traded, particularly the latter part of September post the FOMC, which is normally such a weak time for the market

October 2017 has just two normal points this year:

For October, there are just two turning points – the employment report (not a strong edge historically) and opex (great for bottoms, not always that helpful for tops, but there have been a few like the MAJOR opex tops in 2009, 2012 and 2016), as the FOMC meeting does not finish until November 1^st.

• Employment – No real edge – October characteristics seem to have a much greater impact
• Opex – Is again mixed – the market will turn if it gets in to an extreme condition, but it is also heavily influenced by what has occurred in the preceding two weeks.
• Note: FOMC is on October 31^st and 1^st – The market continues to rally in to almost all FOMC meetings. (the last proper move down in to an FOMC meeting was for the November 2016 meeting that occurred 2 days before the employment day bottom)

Given the way these two October turning points operate, I will publish blog posts around the time of these events if / when I detect a potential edge. Right now, there is no identifiable edge given the SPX (and almost every other index) is trading at all time highs and the MID and RUT are in melt up mode
Given the rally since Monday, September 25^th, the one historical edge that I did highlight this past Wednesday regarding the last 3 days of September and the first 3 trading days of October (good for a bounce, if not a bottom) did not materialize the way it normally does with a tradeable low during that 6 trading day period. Instead there was an earlier than usual low on the 5^th to last trading day of September and this fairly persistent rally since then.

Technical Conditions of the SPX:

The technicals for the MID and RUT are extreme, the SPX not quit so much. As always, technicals are only a relative guide.

• Monthly: RSI (9) – 85 and MFI (14) is 82. Such a high RSI has not been seen since May 2007. SPX   has not had a monthly lower low since November 2016. Yes, it is extreme – but it can get more extreme
• Weekly:   RSI (9) is 74 and MFI (14) is 60 – the brief June and August corrections has kept this indicator from getting too extreme. SPX has hit the upper weekly bollo the last 2 weeks (now 2525), but not really exceeded it by that much– In the Special Research section I re-publish a study that I last posted in October 2016 that did highlight the historical risks to the SPX of hitting the upper weekly bollo during the second half of the year (H2)
• Daily: RSI (9) is 77 and MFI is 65. Upper daily bollo is 2320 and has turned upwards, so the SPX could

Note: The Daily RSI(9) of the RUT is 93 (I have read that this is an all time high) and the RUT (1509.5) is trading well above the upper weekly bollo (1489) and daily bollo (1505). The weekly bollo has been exceeded for two weeks now. This last occurred last November – but it took another two weeks for the RUT to top out.

The price action, particularly in the MID and the RUT, has been impressively persistent since the post August opex bottom, while the SPX’s rally has been more gentle. I have no idea when the persistent price action may end, though I will reiterate the two points I did highlight in my Wednesday post that are short term concerns:

• NO Hourly MID Buy Signal in all of September a Quad witch month in the two Quad opex months that this occurred (March 2013 and June 2014), the MID had quite a rough first half of the month in April 2013 and had a bad month in July 2014 – the SPX did not suffer quite as badly. Overall, there have been just 9 months since the bull market began without an hourly buy signal. In the non Quad opex months, it is evenly split between the market having a substantial pullback (example: Feb 2017 – market topped on 1-Mar at 2401 and declined to 2322 on 27-Mar) and the buy signal marking a good buying opportunity (example: July 2016 – Signal on Tuesday August 2^nd marked the low for the month).     With the BIG up day yesterday, 2-Oct, the MID did the same thing it did in March and July 2014, (and it topped on both of those first trading days), but that does not mean it will happen this time.
• NO 10 min MID Buy signal for at least 13 days – 20 instances since 2009 (significant tops 13 times – bottoms shortly thereafter 7 times) – As of today, we are at 19 days and counting without a 10 min buy signal. The longest period since the bull market began is 22 days in June 2016. (the market topped the day before at 2121 and did not bottom till the post Brexit low at 1992 at the end of June) Per last week’s note, there was a 15 day period that ended on Sept 5^th and it took two more days of small losses for the MID to bottom and rally.

BOTTOM Line

The persistent bull was definitely persistent in September in defiance of the usual September tendencies. There are lots of reasons WHY the market should top out and have a multi week, if not longer decline:

• SPX Trading at / above the upper weekly bollo band (and RUT and MID way above) in the second half of the year (H2 – see research below)
• Long periods without 10 min and Hourly Buy signals in the MID
• Extreme Daily RSI for the RUT
• SPX not trading below its previous month’s low since November 2016

BUT, it is not easy to use history to confidently predict that the market will have a MAJOR top this October as other than 2007, 2000 and 1997 (for 21 days), October has not been a month known for significant or substantial tops – despite all of the gloom and doom merchants reminding everyone every year of the Crash of 1987 (which was a GREAT October buying opportunity). For now, overbought can certainly become more overbought and the most sensible strategy seems to be disciplined with one’s risk management on long positions and for those waiting for the next market turn, October opex is likely to bring the clearest opportunities, particularly if the market declines in to it.

It is definitely a historically impressive and persistent bull market, particularly in the last month.

-D

SPECIAL RESEARCH

One of the more interesting things about market history is that while it never repeats exactly, there are some historical facts that do seem to be found in almost every year. One of those facts is that during the second HALF (H2) of almost every year since 1998, the market has made a significant turn after touching the lower or upper weekly Bollinger Band. Most of these significant turns have been bottoms.

Since 1998, the market has touched the upper weekly Bollinger band in 4 instances and had substantial tops (2 month plus decline) or more significant tops (multi year) occur at some point in time during H2 of that year:

1. 2016 ** Substantial TOP – Topped at 2194 on August 15^th and fell to 2084 – just above the weekly bollo band on November 4th
2. 2012 ** Substantial TOP on Friday, 14-Sep – day after FOMC at 1475   (there was also a November bottom)
3. 2007 :   Significant MEGA TOP on Thursday, October 11th at 1576
4. 2000: : SIGNIFICANT MAJOR TOP on Friday, 1st of Sept at 1530 (employment day)

• There have been 3 years where there was NO significant or substantial top in H2 – the beginning of bull market years of 2003 and 2009 and somewhat surprisingly, the persistently bullish year of 2013. In all three of those years, there were multi week pullbacks during the second half of the year, but none of the tops that were made were particularly significant or substantial.
• Note: The SPX has only had a 13 day pullback so far, so a multi week pullback some time in Q4 2017 does make sense historically.

The list of significant H2 bottoms is MUCH longer

1. 2015 MAJOR BOTTOM on Monday, Aug 24^th post opex at 1867
2. 2014 – SIGNIFICANT MAJOR BOTTOM on Opex Wednesday, the 15th well below lower bollo at 1821
3. 2012 – MAJOR Significant bottom on Opex Friday, Nov 16^th at 1343
4. 2011 SIGNIFICANT MAJOR BOTTOM on 2nd trading day of Oct – Tues, 4-Oct at 1075 – Tuesday before employment
5. 2010 – Thursday, July 1^st at 1011
6. 2008 – 21^st of November at 741 (Opex Friday)
7. **2007 (DOUBLE TURN) – opex Thursday, August 16^th at 1371 –(** but this was not the primary turn – the October top was the primary turn)
8. 2006 – re-test of June low on 18-July at 1225
9. 2005 MAJOR Significant BOTTOM on Thursday, October 13th at 1168
10. 2004 – Significant low on Friday, Aug 13^th at 1060 – LOW for the year
11. 2002 – SIGNIFICANT Bottom on Thursday October 10th at 769
12. 2001 – SIGNIFICANT BOTTOM on Opex Day, Friday, Sept 21st at 945
13. 1999 – SIGNIFICANT bottom below lower bollo on Monday post opex, 18th of Oct at 1234
14. 1998: SIGNIFICANT BOTTOM on Thursday, 8-Oct at 923 well below lower bollo

Alas, unless there is a sudden unexpected event, a significant H2 bottom does not look likely

October: The MOST CRITICAL MONTH for TURNS:

October is probably best remember for the Crash of ’87 and the 2007 top, but in reality, the month is the most critical one for MAJOR significant turns. It does not happen every year, but it happens often enough that one needs to be of October’s historical track record:

• 2016 (election year) -NO Critical Turn – Top was in August and there were lower highs On Sept 7^th and Sept 22^nd – Market then has a gentle slide most of the month with a sharper downtrend occurring after a MAJOR top on the Monday post opex led to the MAJOR pre election bottom in early November on the employment day.
• 2015 – NO Critical Turn Market bottom was on Tuesday, Sept 29^th and the market rallied persistently all of October
• 2014 – MEGA BOTTOM on Opex Wednesday – relentless selling in October with multiple closed below the lower bollo band and an extended lower bollo band run finally ended on opex Wednesday and the market reversed sharply higher
• 2013 – MAJOR BOTTOM during the second week of October on the Wednesday and then a strong rally that lasted the rest of the month
• 2012 – (election year)NO Critical Turn Actually a market that went slowly down month after the MAJOR TOP in September – quite an uncharacteristic October
• 2011 – Oct 4^th – Tues bottom – low for year
• 2010 – NO Critical Turn – strong month long rally
• 2009 – corrective low on 2^nd of Oct and then post opex top
• 2008 – (election year) MAJOR slide till the 10^th of Oct
• 2007 – MEGA Top on 11-Oct
• 2006 – NO Critical Turn – strong rally all month
• 2005 – Thursday, 13^th of Oct was last buying opportunity below the 200 day MA until May 2006
• 2004 – An unusual October pullback from a high on the 7^th to 25-Oct pullback then the usual year end surge occurred
• 2003 – NO Critical Turn – Major pullback low on Sept 30^th and then a post opex pullback
• 2002 – Major double bottom low on Wed 9-Oct
• 2001 – NO Critical Turn strong rally from the post 9/11 opex lows stalled out during opex, but the rally re-gained energy at the end of the month
• 2000 – Plunge till Wed of opex week – October 18th
• 1999 – Summer correction ended on Monday, post Opex – October 18^th and then there was a HUGE year end rally
• 1998 – HUGE panic LOW on Thursday, 8-Oct (LTCM and emerging markets)
• 1997 – 8-Oct peak and then a crash on 27-Oct with a bottom on 28-Oct
• 1994 – key low on Wednesday, October 5^th and then a 5% rally for the month
• 1992 – Sudden plunge – but then final low for the year on Monday, 5-Oct
• 1990 – Low for Year was on Thursday, October 11th
• 1989 – Peak for the year was on Tuesday, the 10^th of October
• 1988 – Peak for the year was on Monday post opex – 24-Oct
• 1987 – Crash and low was on 20-Oct – Tuesday post Opex

Last 3 trading days of September / First 3 trading of October bounces or bottoms (as of close of business on Tuesday, September 26th )

After refreshing itself with the pullback in to the post August opex bottom, the persistent bull has definitely been alive and well in September. While the purpose of this post is to really highlight one of the quite persistent market quirks that I have identified in my research, it is also a good time to highlight some other aspects of the current market, which is definitely persistent. Here are just a few of the many points that are relevant for the current market.

• The persistent advance that I had highlighted in July (historical points for the Bears) did finally (and briefly) see the SPX trade at its 20 week MA in August. It was by far the longest period since 1998 that the market had gone without touching its 20 week MA – a total of 277 days. The previous longest was the 217 days from Oct 98 to May 99.   It should also be noted that the 13 day correction duration in August was THE shortest correction (previous shortest was the 21 day 7.2% correction in May 1999). At minus 2.8%, it was the second mildest (-2.1% in Dec 2006 / Jan 2007).
• The last time the SPX touched its 200 day MA (now 2389) was briefly last November. There has only been one year since this bull market began that did not see a touch of the 200 day MA – that was 2013. (It went from Nov 2012 to Oct 2014 without touching it) One must go back all the way to 1993 to find another year where the market did not touch its 200 day MA. (In 1995, the market touched it on the first trading day of the year and in October 1997, there was a sharp move lower from October 7^th to October 28^th – the SPX lost 10.8% – touched its 200 day MA on the Asia mini crisis and then rallied strongly again.
• The current market also shares some other similarities (so far…) to Q3 2013 with the strong advance in July, the August employment top, the late August bottom (last week of August in 2013 vs post August opex in 2017) and a strong rally that stopped post the FOMC announcement (Sept 19^th for 2013 and so far Sept 20^th for 2017). Interestingly, while the SPX corrected till October 9^th, 2013 and to below the lower daily bollo – 83pts in total or 4.8%), the MID and the RUT stayed strong and made new highs in early October 2013 before also correcting to October 9^th. Right now the RUT is making new all time highs, while the SPX is correcting just below last week’s high, so the current price action is similar to 2013.

Before reviewing the long side quirk period that starts today, Wednesday, Sept 27^th and ends next Wednesday, Oct 4^th, there are two cautionary points to highlight.

• Extended period for the MIDs without a 10 minute buy signal. I last highlighted this study in late April when the MIDs went 15 days without a 10 minute buy signal. The study was also triggered on September 5^th (also 15 days without a buy signal). There have been now 20 instances of this signal since spring 2009. 13 times the market major topped near the signal date and 7 times the MIDs bottomed shortly thereafter. In April when the signal was triggered, the MIDs corrected 4%, while in September, the MIDs just went a bit lower and bottomed 3 days after the signal triggered. As of today, it has been 13 days since the MID last had a buy signal.

Lastly, there has not been an hourly MID buy signal since August 17^th. So far this drought has been 41 days. That means there also has been NO buy signal in the whole month of September. This leads to two other studies.

1. September might be the 10^th month since April 2009 not to have an hourly MID buy signal. Just two of those months have been QUAD witch months (March 2013 and June 2014) – both months the MIDs topped early the following month and fell quite a bit.   The last month there was no hourly buy signal was in Feb 2017, the market topped for the month on March 1^st. The time before that was July 2016 and the market bottomed the day after the signal triggered
2. When there has been an extended period – at least 30 days without a MID buy signal – the best strategy has been to wait to buy the next day for at least a bounce. This strategy was “ok” in March 2017 and Dec 2016 for a bounce, but it missed the lows in Jan 2017. It nailed the lows in August 2016.

Now on to the primary point of this post.

Last 3 trading days of September / First 3 trading of October bounces or bottoms

The idea is that there is at least ONE big up day during the last 3 trading days of September or the first three days of October, if not a significant bottom

• Key is simply judging the circumstances
• For now, September opex does not seem to provide any clues as to what might transpire.
• It works BEST after BIG down days
• In post opex uptrends, it is generally just a nice pullback that provides the buying opportunity.
• In post opex downtrends, it can be either the bottom or will at least produce a strong bounce that will lead to a stronger bottom later in October. (eg 2012 and 2014)
• There are two slight exceptions,
  1. In 2007, the market made its low on the 4^th to last trading day of September which was the Tuesday post opex that year. The market then rallied strongly in to the second week of October MEGA top.
  2. In 2016, SPX made a trading low on the 4^th to last trading day of Sept. SPX had peaked the day after FOMC on 22-Sep and went down for 2 days and then rallied from the open on Tues, the 27^th for 2 days – market was in a tight range. The 2 day rally was good for 32pts in the SPX

Largest Moves: Major Lows in 1999, 2003, 2009, 2011 and 2015

• The lows in 2011 (+220 pts) and 2015 (+247 pts) started very substantial October rallies

Smallest Moves: There was a day move in 2008 – still worth 60 SPX points, but one needed to sell on the day

• 4 times since 1998 – it has been a one day move
• Smallest Price move – 23 points

Recent Tendencies

• 2016 – *** Slight exception –SPX made a trading low on the 4^th to last trading day of Sept. SPX had peaked the day after FOMC on 22-Sep and went down for 2 days and then rallied from the open on Tues, the 27^th for 2 days – market was in a tight range. 2 day rally was good for 32pts in the SPX
• 2015: Q4 bottom was on Tuesday, September 29^th well below the lower daily bollo– the market took a while to get moving, but then took off on employment Friday.
• 2014: 2^nd day of October – Strong Thursday pre employment to Monday post employment bounce (53pts)
• 2013: There was just a 23pt bounce from Sept 30^th to Oct 1^st and then downtrend continued for another 8 days
• 2012: Bottomed on the 3^rd to last day of September on the Wed post opex, the market then bounced 42 pts to October employment Friday
• 2009, 2010 and 2011 – ALL have had lows on the 2^nd day of October and there have then been very large bounces!
• 2009 and 2011 had low daily stochastics – near 30

While Cobra is really the expert on what occurs at the start of the month / quarter, I will note that the start of the month has been overwhelmingly positive this year with just one down day so far in 2017.

• Friday, Sept 1st (employment day) +5
• Tuesday, August 1^st +6
• Monday, July 3^rd +6 – up as much as +16 on the day
• Thursday, June 1^st +18
• Monday, May 1^st +4
• ***Monday, April 3^rd   -3.9
• Wednesday, March 1^st +32
• Wednesday, February 1^st +1
• Monday, January 3^rd +19

For now, without a new low below Monday’s low in the next 6 trading days, this will be the first time since 1998 that the market has not provided this late September / early October pullback / buying opportunity. The most marginal of these opportunities was in 2010 – when the market pulled back 28pts from Sept 30^th to Oct 4^th and traded at its lowest level since Sept 24^th – ie. it was just a small pullback near the 20 day MA before the market launched higher.   This scenario is possible if there is a new high in the next few days and then a pullback.

Lastly, late September (just in 2015) and more generally, October is generally a time to focus on buying market weakness. Some times this weakness is extreme (October 1987 and more recently October 2011 and 2014 are examples)   2010 is really the only recent year since 2009 that has not provided real market weakness to buy in to (but the SPX was battling its 200 day MA from May through August).

There have been two years recently – both election years – 2012 and 2016 where there was market weakness in to November and the markets never had very strong rallies in either of those two Octobers, but there were a few solid bounces.

Bottom Line:

The late September / early October potential buying opportunity is a market quirk that just seems to work, though I can not explain why. It is the same with the last Tuesday of August and first Tuesday of September – both which produced solid buying opportunities this year. For now, there really has not been the normal late September weakness. The post FOMC pullback that has just been 21pts so far is less than was even seen during the most bullish September which was in 2010. Yes, the market really is persistent!

• The highest probability for this study to work will be to buy the day after either a 10 min buy signal in the MIDs or an hourly Buy signal in the MIDs
• It is possible that a pullback after new highs might also work, but there is only the 2010 analog for that possibility

Like many historical studies that I publish, it is always possible that this one does not work, but it is at least something to be aware of.

More with the October preview next week.

-D

Post September Opex Comments and FOMC Preview  (as of shortly after the open on Tuesday, September 19^th – day before FOMC)

The market has had a great run this month once it broke above the range of the large down bar of Sept 5^th – this was just like the move after the break above the 29^th of June large range bar. This current week has always been a challenging one for the SPX, especially when the market has trended higher during the month of September.   Here are all of the various historical points that should be considered. As always, this is just what has happened historically and the market can always decide to do something different.

FOMC Post Opex

While post opex week FOMC meetings were reasonably common until March 2013, there has only been one since then in September 2016. Last September’s FOMC meeting was a MAJOR top on the day after the FOMC after a strong rally on Fed day (+23pts) and another solid rally (+14) on the day after the FOMC. It was a lower high top as the high has been established in August and the rally was in part corrective after the SPX had plunged 54pts and well below the lower daily bollo band on the Friday before opex week.

• With the recent all time high, the market does not share that many characteristics with the Sept 2016 FOMC meeting

There have definitely been turns around these post opex FOMC meetings, but it is not clear whether they are opex or FOMC related or a combination of the two. In addition to the September 2016 meeting, there were post opex FOMC meetings in September 2009 (MAJOR top on Fed Day – Wed post opex)   September 2010 (minor top on Tuesday post opex – FOMC day) and in September 2011 (MAJOR top on Tuesday post opex – day before FOMC).

• September 2009 probably shares the most similarities to the current market, but even those are limited. The SPX in September 2010 spent a significant amount of time below the 200 day MA in the summer and in Sept 2011, the SPX was below the 200 day MA.
• In September 2009, the SPX had made its low for August during opex week and then it made its low for the month of September on the 2^nd trading day of the month (same as in 2017 so far) and then rallied pretty steadily until topping for opex week above the upper bollo on Opex Thursday and then making the high for the month on Fed day.

Below in the detail is a list of all of the September FOMC TOPS

Recent FOMC Meetings

The last three FOMC meetings have been less significant for the SPX with minor tops in June (Fed day top and 25pt move lower in to the next day) and July (day after Fed Day top and 23pt fall and bottom that day) and a minor bottom for the May 3^rd meeting and a 25pt bounce. The interesting thing to note about the last two meetings is the sharp falls that ended the correction on the day of the fall – this is unusual!)

• Wednesday is a press conference meeting and Yellen has generally not provided any shocks in her press conference. In fact, the press conferences have all been rather market friendly – Other than Dec 16 (down 18 pts), the SPX has generally been higher (eg 20pts in March 17 and 24pts in Sept 16) with just the June 2017 (down 3pts), June 16 (down 3pts), Sept 15 (down 4pts) and March 14 (down 10) being small losers in the last 4 years of press conferences.

RECENT Quad Opex months and September Opex

There has RARELY been a rally or fall continuation for a Quad opex month. While this persistent bull has seen more than its share of rally continuations (the last ones being in July and Feb of 2017 and Nov 2016) There has not been a Quad opex month that has not had at least a minor countertrend reaction (top or bottom) since March of 2005.

• BUT, it should be noted that some of the corrections have been quite short in duration with the 1 day Dec 16 fall of 30pts being the shortest duration move
• The smallest point move was approximately 24pts seen in June 14 and March 13

September When to sell

The persistent bull has always surprised to the upside with its persistence. In September 2016, there was a lot of chatter that the market would keep going higher for the rest of the year and then it surprised with its day after FOMC top and pullback to the 200 day MA on November employment day.

This September the market has clearly trended higher through opex and now it has reached the last turning point that has consistently been a turning point for the market – the September FOMC meeting. There have been 8 Septembers since 1998 that have seen the market trend higher until after September Opex.

• 5 of those Septembers saw the market peak post September opex and fall (2016, 2011, 2009, 2004 and 1998) And 2004 was the only year that the market did not fall in to October before moving higher (it hit the lower bollo on Sept 28^th and then later made a lower low on Oct 25^th)
• The other 3 Septembers (2010, 2007 and 2006) saw limited pullbacks of just a few days that ended during the week after opex. BUT, it should be noted that all three of those years the SPX had spent time below the 200 day MA in August.

REMINDER – Last 3 trading days of September / First 3 Trading Days of October

While I will provide more detail next week closer to the period, one must also remember that the SPX has a strong tendency to bounce or even make a MAJOR bottom on the last 3 trading days of September or the first three trading days of October. MAJOR significant bottoms occurred during this period in 2009, 2011 and 2015, while other years there have just been bounces (2016 – 33 pts in 2 days, 2014 – 53pts in 4 days, 2013 – 24pts in 1 day and 2012 – 42pts in 9 days)

• 2010 is really the only recent year when the market had a minor dip and then continued to rally
• 2007 the low was on the 4^th to last day of September and the market then powered higher in to the MEGA top on October 11^th

Technical Conditions

The persistent bull really has reached its highest level of persistence for this whole bull market – actually since 1998 in 2017. The 13 day correction in August was by far the shortest duration correction the SPX had endured after an extended period of not touching its 20 week MA. The 277 day duration from the Nov low to the Aug 8^th high was also by far the longest rally. The previous longest rally had just been 187 days between 8-Jul-09 and 11-Jan-10. Yes, the market has been more than impressive in its persistence.

• On a monthly basis, the SPX is OB and has not broken the previous month’s low since Nov 2016. The monthly RSI of 84 was last seen in Dec 2013 when the market then experienced a brief 1 month correction
• The SPX is back at its upper weekly bollo band (2508) which is a technical barrier that has tended to slow the market down, but nothing more
• On a daily basis, the daily RSI of 73 is high, but it has not proven to be an impediment to continued persistence
• The midcaps did get hourly OB yesterday (the Monday post opex) This has been a more reliable signal for a near term minor top when the market has been rallying during opex week. The last time such a signal was experienced was in April of this year. The market peaked the day after the signal and the rally just stalled for 7 days.
• Unfilled gaps in to opex week (like last Monday’s) have been quite bullish recently with the April 2017 (2329) and Feb 2017 (2316) gaps remaining unfilled! The July 2016 gap up in to opex week was not filled until September 2016 opex week.

BOTTOM LINE:

The persistent bull has been super persistent in 2017, but the SPX has also still been reasonably respectful of the reasonably high probability turning points as July opex is the only recent turning point that has not seen the market turn and in the end the market topped the day after the FOMC (one day after the opex window) and then just had that sharp 23pt sell off.

For now, the bulls are in control, but it is definitely reasonable for the market to have a top of some sort in the next few days for a number of reasons:

• There have only been 3 Septembers that did not have somewhat significant pullbacks and only 2006 did not have at least a short FOMC inspired pullback
• The weekly upper bollo band should slow the SPX down.
• Quad opex weeks almost always have turns and given the gap up and rally, the only turn possibility is a top (minor or major)
• One must also remember that the SPX has tended to correct at least a bit when it has exceeded the round number milestones. When it exceeded 2400 on March 1^st, it then corrected to 2322 on March 27^th and on 26-Jan-17 when it exceeded 2300 it pulled back to 2267 on 31-Jan-17
• Lastly, the MID and the RUT have continued to be the indices that have been moving the most both UP and down.

In the end, the FED and Janet Yellen are the keys to this market, so it will be interesting to see the markets’ reaction to her press conference.

Ever interesting,

-D

DETAILED DATA

September Turns + / – FOMC by two days

2016 – After one day – Sept 22^nd

2015 – FED Day and then down hard

2014 – 2 days after FOMC

2013 – Day after – Opex Thursday

2012 – Day after Friday before opex week

2011 – Day before

2010 – Post announce – brief pullback (minor)

2009 – Post announce, post opex

2008 – Paulson bottom – 2 days after

2007 – day after minor top

2006 – None – steady rally

2005 – Bottomed 2 days after

2004 – Topped on Fed Day

2003 – MAJOR TOP – 2 days after

2002 – minor bottom – FED day

1. – No impact

Note: There have been 3 years without meetings in September. These meetings occurred on 5-Oct-99, 3-Oct-00 and 2-Oct-01

WHEN has been the best time to sell in September?                    

(*** please note the double counts as it means the market rallied and provided another opportunity to sell)

• Beginning of the month – 3   (2011***, 2008*** and 2000)
• Post Labor Day Holiday – 3 (2008 *** , 2001 and 1999)
• Post Employment – (2^nd week of Sept) – 5 (2016*** – also Sept 22 post FOMC, 2012 (post FOMC), 2005, 2002, 1999
• Opex week   – 5 (all when FOMC was during opex week) – 2015, 2014, 2013, 2008*** and 2003
• Post Opex – 5 all with FOMC post opex or no FOMC ( 2016***, 2011 ***, 2009, 2004 and 1998)
• Brief Pulbacks – 2   (2010 – post opex / post FOMC and 2007 opex day / 2 days post FOMC)
• Never – 1   2006

Opex Preview for August 2017 (Preview as of close of business on Opex Thursday, August 17^th, 2017):

MEA CULPA – I was originally going to publish this preview early Monday morning, but I got too excited by the possibilities of a fall in to opex week and selling acceleration and a mid opex week low like occurred in August 2007… I was just too quick to dismiss the persistent bulls tendency to rally right after a WIDE range day as happened post June 9^th, post June 29^th, post July 27^th and now post August 10^th.

• NOTE the SPX has rallied in to opex week for 11 consecutive months, which is the LONGEST streak since before 1998. The longest recent streak was 8 months which ended in the flash crash month of May 2010.

The BIG Gap up on opex Monday basically put to rest my primary bias for opex week, so I put this preview on hold….Apologies for that, but the preview as originally written would not have been that helpful given Monday’s price action. Still there is a LOT to cover…. As today’s (Thursday, Aug 17^th) move has improved the possibility that we will see a decent post opex buying opportunity – probably just for a bounce, but possibly for more.

Despite the sell off, the BULLS do have the August tendency to be a month for producing a decent buying opportunity- on Monday, it looked like that buying opportunity (and the low for the month) was on Thursday, August 10^th, (which would have been REALLY surprising to me…) but the latest sell off means that the August low will occur later in the month, which makes sense given the all time high on Tuesday, August 8^th.

For the BEARS, they still await Cobra’s high to low 7.5% pullback, as well as the other points I have noted previously such as the length of time between SPX visits to the 20 week MA (now 2418). One important note on the overdue pullback to the 20 week MA… The median length of the correction to the 20 week MA and beyond is 45 days (the average is 60 days) and the correction is generally a bit more than 100 SPX pts (but also has a median % change of -9%). These stats do suggest that the expected August buying opportunity might just produce a bounce in to September before the market goes lower.

Overall, there are lots of things to look at to determine IF an August opex period bottom is likely, if so when? Also, it is possible that the SPX rally to 2475 on Wednesday has created a lower high August opex top after the 37pt rally from last Thursday’s low. This is possible, but given the August tendency to rally, it is not that likely.

August Opex

There have been FOUR Major August Opex bottoms in the last ten years (2007, 2010, 2011 and 2015) and one minor bottom in 2013 that are notable: Let’s look at them

MAJOR Bottoms:

• 2015: SPX had topped post July opex and had a mild correction. There was a bounce from Wed Aug 12^th till opex Monday and then the selling started slowly and then accelerated on Opex Thursday and opex Friday as the SPX traded below and stayed below its lower daily bollo band before the MASSIVE gap down was bought on the Monday post opex and an extreme low was put and the market rallied in to September opex.
• 2011 – This August opex produced a higher low buying opportunity on the Monday post opex after the massacre that occurred in early August that led to the Tuesday post August employment bottom.
• 2010 – The SPX topped on the Monday post August employment and slid to the lower bollo on opex Monday an then had a brief bounce before sliding along the lower daily bollo until bottoming on the Wednesday post August opex.
• 2007 – Like in 2015, the SPX topped in July and corrected along the daily lower bollo until bouncing on the Monday post employment (the 6^th) until the 8^th and then the market slid hard for another 8 days before bottoming with a panic post the open sell off of 28 SPX pts on opex Thursday… Market then rallied until the October top.

Minor Bottom

• 2013 – market had topped on August employment day (August 2^nd) and had a mild pullback before selling started and the SPX closed below the lower daily bollo on Opex Thursday. The market traded lower along the lower daily bollo until bottoming (just for a bounce) on Wed post opex, the 21^st.

IMPORTANT thing to note is that except for the 2007 bottom – ALL of the bottoms were POST Opex and the bottoms all occurred after the SPX had spent some time trading lower either along or below the lower daily bollo.

• Also, in the last 6 years (out of 7) that the SPX has turned in August opex – ALL of the turns were post opex!

August employment tops – The SPX has now had a MAJOR top on the Tuesday post employment – what does that mean?

• There have been just THREE Major August employment tops since 1998. One was in 2001, which is not that helpful. The other two were in 2013 and 2010 – interestingly, both times the market did not bottom until the Wednesday post opex. In 2013, it was just for a bounce, while the 2010 bottom was a lasting one.

End of week before opex week BELOW lower daily bollo – has only occurred 8 times since 2007 before last Friday’s close at 2441 with the lower daily bollo at 2447

• This condition occurred last Friday and other than April 2014 and April 2017 and the special case of October 2008 (sharp rally to opex Tuesday and then another fall), the market made its lows during opex week.
• This was (what turned out to be) the fake out for me this week, as Monday’s gap up and rally looked like a repeat of April 2017.
• All 8 instances produced opex period bottoms, BUT only the April 2014, April 2017 and October 2014 bottoms produced lasting bottoms. All of the others produced sharp bounces, but then moves lower – recent examples are January 2016 (Wed post Jan opex bottom), Dec 15 (Opex Monday and Friday bottoms, but then just a bounce as market fell in January) and Dec 14 (bounce, but then lower in January)

SPX below lower daily bollo during opex period:

• This condition has happened a LOT since 2007 – 33 times – and it always does produce bottoms – almost always MAJOR bottoms, but the challenge is WHEN does the market bottom
• Some times – like May 2017, the market just makes a brief visit below the lower daily bollo and rallies. Other times, like in January 2016 or August 2015, the market experiences an intense period of selling before bottoming.

RIGHT now, given the long period of persistent bullishness needs to come to an end at some point, it does not seem like the market can immediately turn on a dime and rally from being below the lower bollo on Opex Thursday.

CURRENT Conditions

• On a MONTHLY basis, the SPX is still very extended with an RSI of 74.
• On a Weekly Basis, the SPX had negative divergences when it hit its latest all time HIGH last Tuesday, August 8^th. The weekly RSI of 54 is quite neutral as are the other weekly technical indicators
• The daily SPY RSI is 34 and the MFI (14) is 43 – these are at the lower end of the range when the market is persistently bullish, but they can go lower. An MFI reading below 25 in the next few days would be a decent buy signal
• All of the indices produced hourly buy signals on Thursday.   I only track the hourly buy signals for the MID

MID Hourly Buy on Thursday of opex week – the LOW for the opex period is RARELY on Opex Thursday. There have been 4 hourly buy signals on Opex Thursday in August since 2009 – ALL of them (2010, 2011, 2013 and 2015) saw post August opex bottoms.

BOTTOM Line:

The market was clearly caught by surprise by the selling acceleration today (Opex Thursday).   While I will not count out the persistent bull quite yet, a period of hibernation for the persistent bull is due and a period of at least a month or two of more normal two way price action should be expected.

• If this hibernation of the persistent bull does occur, then any August opex period bottom will be a BOUNCE not a lasting bottom.   In 2013, the bounce was just from the Wed post opex until the following Monday.

For now, all of the stats and the August tendencies point towards an August opex bottom – really most likely to be a post August opex bottom and BOUNCE

• If the persistent bull is alive and well, the market possibly bottomed at the close today (Opex Thursday) or will do so near the open on Opex Friday – this is NOT WHAT August opex tendencies would predict, BUT it is what has been happening since the latest persistent bull phase started last November.
• More LIKELY is a POST August opex bottom and a strong BOUNCE.
• While August 2015 is too recent for the market to probably follow that script of an EXTREME low on the Monday post opex, the more likely scenario based on the other August opex bottoms is still a few more days of selling and a low post opex, possibly like in 2013 and 2010 on the Wednesday post opex, but the day of the low is probably more dependent on the degree of selling. As a reminder, from Opex Wednesday in August 2015, the SPX was down 17, down 44, down 65, down 78 and down 26 before it rallied. August sell offs can be extreme.  School starts again on Monday for my kids, so I will be more focused and regular in my posting from next week!
•  Apologies for the delayed preview. In the end, I hope the delay is beneficial in strengthening the case for a post August opex bottom. This is definitely been the August opex tendency, but for now, given the SPX generally has a period of weakness once it trades at its 20 week MA (2418), my expectation is that any bottom the market has will only produce a bounce…..

-D

August Opex Detail

• Used to be a major turn every year– but since 2011, the only year has been the MAJOR bottom on the Monday post opex in 2015
• 2008 and 2009 – Major top and Major bottom were the Monday of opex week 2007 was the Thurs of opex week
• MAJOR BOTTOMS 2010 (Wed after opex), 2011 (Mon after opex) and 2015 (Mon after opex)

The last 6 August opex turns (2010 through 2016, no turn in 2014) have all been post opex!

It should be noted that there was a rally continuation in August 2014 after the oversold pre opex week bottom. August opex also had rally continuations in 2000, 2003, 2004 and 2006 and a very rare fall continuation in August 2005

1. 2016 Minor top on Tuesday post opex, August 23rd at 2193 and a pullback to Friday, Aug 26th at 2160 (Opex had some volatility with a Monday to Wed pullback from above upper bollo to 20 day MA)
2. 2015 MAJOR BOTTOM on Monday, Aug 24th post opex at 1867 with futures far lower than that after a total collapse below the lower bollo
3. 2014 Rally continuation – market got quite oversold in to the low for the month on the Thursday before opex week – market then rallied and kept going all opex week and onwards in to early September – unexpected given the usual August opex tendencies
4. 2013: Had topped on August employment day and a slow rollover accelerated during opex. We minor bottomed on the Wed post opex, but just bounced for 5 days and 31 pts
5. 2012 – Just a minor top on the Tuesday after with a 3 day 28 pt pullback
6. 2011: Major bottom on the Monday after opex
7. 2010: MAJOR Bottom on the Wednesday after opex –
8. 2009: Major bottom on the Monday of opex week – this really was the end of a post employment correction and then the rally resumed
9. 2008: Major top on the Monday of opex week
10. 2007: MAJOR Panic Bottom on the Thursday of opex week
11. 2006: Rally continuation / Stall – went nowhere from opex Friday 18th to Tues 22nd and then pulled back a tiny bit before heading higher
12. 2005 FALL continued –market just gently fell along lower bollo until Tuesday, Aug 30th at 1201 at 200 day MA and then rally was on in to September
13. 2004 – NO TURN – RALLY continuation until brief pullback on Friday, Aug 27th that lasted until Tues, Aug 31st at 1095
14. 2003 Rally continuation – till Friday, August 22nd – then a brief pullback from upper bollo to 20 day
15. 2002 MAJOR TOP on Thursday post opex on 22-Aug at 965 (day after opex period ends…)
16. 2001 minor bottom day after FOMC and Wed post opex at 1153 – below lower bollo – bounced till 27-Aug at 1187
17. 2000 Rally continuation – market kept rising till 1-Sep
18. 1999 MAJOR TOP on Wed, post opex Aug 25th – (day after FOMC too) at 1383 – above upper bollo –   (opex Tues / Thurs pullback)
19. 1998 – TRIPLE Turns (Volatile) – Topped on opex Wed, 19th at 1106, bottomed on opex day, Friday, 21st at 1055 and Primary Turn MAJOR DOUBLE top on Tuesday, Aug 25th post opex at 1107

SPX Closing BELOW Lower Bollo on Friday before opex week starts

Closing below the lower bollo band on the Friday before opex week is a rare condition. It has only occurred 9 times previously since Jan 2007

• Three times it bottomed on the last trading day of the week and rallied – twice it was a long lasting rally (Apr 2014 and April 2017 – Thursday bottom due to GOOD Friday) and one was a sharp bounce (Oct 2008)
• Five times it bottomed during opex week – three times there was a sharp opex Monday to opex Wednesday rally (Nov 2007, Dec 2015 and Jan 16), twice lasting bottoms were made on opex Tuesday (Dec 2014) and opex Wednesday (Oct 2014) and there was one Monday bottom (Sept 16) that saw a volatile week that finally saw the market move higher from opex Thursday for a week long rally.
• Once it bounced from opex Monday to opex Wednesday and then bottomed on the Wed post opex and post holiday (Jan 2016)

Only the April 14, October 2014 and April 17 bottoms saw extended long lasting rallies.

1. April 2017 – Bottomed at the close on the Thursday before opex week – the day before the GOOD Friday holiday – market looked ugly, but gapped up on Opex Monday and started a decent run higher
2. Sep 2016 – MAJOR BOTTOM on Opex Monday – but the market bounced around testing near the lows till opex Thursday and then rallied till the Thursday post opex before stalling out.
3. Jan 2016 – Bottomed and bounced 52pts on Opex Monday to the Wednesday and then a more significant and much lower bottom on Wednesday post opex / post holiday
4. Dec 2015 – MAJOR BOTTOM on opex Monday Market went lower on the Monday (pre FOMC on the Wed) and bottomed around 11:30am and rocketed higher and closed at the highs on the Wednesday before reversing in to opex day
5. Dec 2014 – MAJOR BOTTOM on opex Tuesday -Closed sharply lower on Friday before opex week below lower bollo band. Fell another 46 SPX pts and closed at the lows on opex Tuesday, the day before FOMC – then moved sharply higher until post Christmas
6. Oct 2014 – MAJOR BOTTOM on Opex Wednesday -was following lower bollo band lower for most of early October. Closed below the lower bollo and at the 200 day MA on Friday before opex. Bottomed 92 pts below the initial lower bollo breach to a final bottom on opex Wednesday.
7. April 2014 – MAJOR BOTTOM on Friday before short opex week – Market had fallen sharply for a week and closed at the lows 12 pts below the lower bollo. This was the low for the move and the rest of the year. RUT and MID did not bottom until early in opex week (nb. It was a short opex week as markets were closed for Good Friday on opex day)
8. October 2008 MAJOR BOTTOM on the Friday before opex week and MAJOR TOP on opex Tuesday – breached lower bollo band many times in Sept 08. Market cascaded lower starting on Thursday, October 2^nd and did not stop falling until Friday, October 10^th – 275pts below the initial bollo breach. Market then bounced 204 pts from the Friday before opex to opex Tuesday and then fell again.
9. Nov 2007 – Sharp opex Monday to opex Wednesday rally back to 200 day MA and then a Major top and fall till the end of November. Market first closed below lower bollo and 200 day MA on Wednesday post employment. SPX closed below lower bollo on Friday before opex and bottomed near the close on opex Monday. Market closed 12pts below lower bollo on Friday before opex and the lower low on the Monday was 16pts below Friday’s close. Bounce was 64pts in to opex Wednesday,

August 2017 Turning Point and Employment Preview

(as of close of business on Wednesday, August 2^nd) 

The following is my monthly turning point preview. It touches on important and interesting historical information about the upcoming month.

July Perspective

The market remained persistently bullish in July.   As long as the persistent bullishness remains, the market will have limited turns. While the low for July was on Thursday, July 6^th – the day before employment. The key day was Wednesday, July 12^th which was the gap up higher that allowed the market to rally strongly in to opex week. (REMINDER – these rallies in to opex week have been occurring since October 2016!) The ALL time high and the high for July was on Thursday, July 27^th – the day after the FOMC date. Right now, the market continues to follow the persistently bullish months of July 2013 and July 2016.   The important thing to remember is that the performance of those markets diverged in early August.

• In 2013, the SPX topped out on employment day and then declined until late August
• In 2016, the SPX had two days of weakness on August 1^st and 2^nd – down 31pts in total before heading higher

It is too early to tell whether either of these months will be a useful analog for August 2017.

August tendencies

 Key points:

• Many more MAJOR bottoms than MAJOR tops

• Opex is very good for turns, but if the market is rallying, then it may just be trading range top and pullback. Post opex bottoms are generally MAJOR ones!
• Last Tuesday of August and first Tuesday of September have frequently been local turns or quite near local turns 

The month of August seems to always favor a bullish turn in the market. There have been 6 V shaped bottom and rallies since 1998, 4 BIG slides that provided strong buying opportunities and two strong rallies. The BIG challenge is determining WHEN is the best time to get involved on the long side of the market. There has been at least a 50 pt SPX rally from an August low EVERY YEAR since 2002! – except for 2016 when the rally was only 46pts!

It is an astonishing track record. The real challenge is figuring out WHEN to get involved and that is easier said than done. These buying opportunities are not always fresh lows or complete collapses (like Aug 2015 or Aug 2011). Some times, they are pullbacks in an uptrend like in 2009 or 2012 (that is the challenge). They also may only be sharp trading rallies like in 2011 (bottoms on 9^th 22^nd and tops on Wed, 17^th and Wed, 31^st)

There have been a few tops in August that have been more significant – 2008 and 2002 – both represented 3 month or longer highs – but it has been the buying opportunities August is best known for. Also, one should note that the August 2016 high held until November 2016, but the pullback from that high was not particularly sharp or deep. 2016 was also a three month high, which was not exceeded till November opex, but the high was not significant like in 2008 or 2002.

August Employment

There are definitely turns for August employment occurring, but there has not been a MAJOR one since the employment day top in 2013. The old wisdom for the August employment report was to wait until the week after the employment report to position oneself. This worked particularly well in 2011 when the market collapsed post employment until the Tuesday post employment.

• This is no longer the case – instead with the exception of the persistently bullish period in August 2016, the primary employment turns have been on employment day (2015 minor bottom, 2014 – minor bottom, 2013 – Major Top and 2009 – minor top).
• In 2012, there was a MAJOR employment bottom on the day before employment and the day after the FOMC.

 If the SPY daily RSI (9) remains above 65, then the SPY is likely to close higher on employment day (the study was last published in June)

All of the moves around employment have recently been minor turns with the exception of the MAJOR bottom on the Thursday before employment in July.

With the tight ranges within last Thursday’s range and the high RSI, there really is NO EDGE right now for this week’s employment report. 

August Opex

August opex tends to favor MAJOR bottoms and if the market is rallying, then smaller tops and pullbacks back in to the trading range.

The last 6 August opex turns have all been post opex! The MAJOR bottom on the Monday post opex in 2015 is the most dramatic one. There were also MAJOR post opex bottoms in 2010 and 2011.

Note: It should be highlighted that there was a rally continuation in August 2014 after the oversold pre opex week bottom. August opex also had rally continuations in 2000, 2003, 2004 and 2006 and a very rare fall continuation in August 2005. August, January and February are the most common months for not having opex turns.

Last Tuesday of August / First Tuesday of September 

The last Tuesday of August and / or the First Tuesday of September have been frequent turn times. It is a market quirk that I picked up in my research. It does not happen every year, but the low close on the kast Tuesday in August and the bottom on the first Tuesday of September in 2015 wer a good reminder of this market oddity. In 2016, the market made a 1pt higher high on the first Wednesday of September and then started its sharp decline in to the opex Monday bottom.

I will post more on this later in the month. 

Current Conditions

SPX continues to trade in incredibly tight ranges. For the 3^rd time in 2 months, it is trading inside the range of a large range day

• The Friday June 9^th large range lasted for 5 days. On the 6^th day, on the Monday post opex it was broken and the SPX closed on the highs. That marked the high for the month of June and the market declined in to late June
• The Thursday, June 29^th range was broken on the 8^th day within the range and the market then powered higher
• The Thursday, June 27^th range has lasted for 4 days so far.

Here are the current technicals for the SPX:

• Monthly – quite OB with RSI (9) of 82 and MFI (14) of 82 as well – The MFI reading is a 10 year high, but monthly technicals have not proven helpful in recent years
• Weekly: Also, OB with an RSI of 75. SPX hit a weekly RSI reading of 82 in late February before struggling a bit in March
• Daily – current RSI is 68 – RSI reading at Thursday’s close will be important as RSI readings above 65 are not bearish for employment day.

There is a real divergence among the indices in the last week with the MID and RUT returning to their June trading ranges and the DJIA making new all times highs on a daily basis and the SPX not pulling back much from last week’s all time high.

One reminder: The MID consistently is bottoming when it gets an hourly buy signal within +/ – 30 minutes of the buy signal occurring for the 19^th time in 20 buy signals, this occurrence happened again on Wednesday, August 2^nd.

Also, it is important to note that the MID and RUT right now are the most volatile indices and they seem to be providing the best trading opportunities. The MID and RUT (after Wednesday’s sell off) are both off over 40pts from the highs that they made – pre FOMC – on Tuesday, June 25^th. – The index divergence that really has existed all year between MID / RUT vs NDX & SPX really is quite something.

Bottom Line:

The persistent bull was alive and well in July. The BIG question now is whether this August trades like August 2016 (persistently bullish until post employment in September) or more like August 2013 where the August buying opportunity did not emerge until the end of the month.

The persistent bullishness remains and must be respected, BUT, the technical studies (for the BEARS) regarding the SPX touching its 20 week MA (now at 2409) and the Q2 correction that were posted here:

https://pugsma.com/denalis-turning-points-2/denalis-turning-points-2017/

Still exist and still are appropriately cautionary.

The August 2013 scenario does appeal, but one must ask WHAT is the possible catalyst for such a move as the SPX, NDX and DJIA have shrugged off all potential bearish catalysts to date?

For me, the two key points are:

• August is a month to patiently wait for the market to get strongly oversold and to play the longside. This approach requires patience, but paid off well in 2010, 2011, 2013, 2014 and 2015. This is what I will be looking for and waiting for this month.
• MID and RUT are the indices that are moving the most and seem likely to continue to provide the best opportunities on both the long and short side.

Just two more weeks of summer vacation for my kids! Once they are back in school, I will be more regular with my research. Next post is likely to be during August opex week.

ENJOY!

-D

August DETAIL and supporting evidence

AUGUST LOWS (and buying opportunities) since 1998

First week lows – pre employment (2)

• 2016 – Brief 30pt pullback from Monday, August 1^st to Tuesday, August 2^nd which was the low for the month
• 2012 – Pullback low on Thursday, August 2^nd pre employment

Post employment and second week lows (8)

• 2014 Thursday, August 7^th post employment
• 2011 – Tuesday, August 9^th US Downgrade collapse low on Tuesday post employment / FOMC Day ** two buying opportunities
• 2008 Monday post employment, August 4^th (day before FOMC)   (this was just a sharp 66pt rally one week rally)
• 2006 – Thursday, Aug 10^th – 2 days after FOMC at the 20 day MA
• 2004 – Friday, August 13^th – LOW for the YEAR
• 2003 – Wednesday, August 6th post employment at 961 – below lower bollo at 80 day MA
• 2002 – Monday, 5th of August at 833 post employment (topped out on 22-Aug)
• 1999 – Tuesday, post employment August 10^th at 200 day MA and lower bollo after a long slide

Opex Week Lows (2)

• 2009 – Opex Monday, August 17^th – just a pullback below the 20 day MA, but it held and the summer rally continued
• 2007 – Opex Thursday, August 16^th – well below lower bollo

Post Opex Week lows (3)

• 2015: Monday, post opex August 24^th
• 2011: (higher low) on Monday, post opex, Aug 22^nd
• 2010: Wed post opex, August 25^th (low was re-tested but held on Tues, Aug 31^st)

Last week of August lows (2)

• 2013 Wednesday, August 27^th   (after a sell off from employment day
• 2005 Monday, August 29^th at 200 day MA and lower bollo

Only a few of these lows were truly significant.

• 2004 – LOW for the year
• 2007 – Low before last rally in to the SIGNIFICANT October top
• 2010 – Final buying opportunity of the year as an explosive rally started at the end of August
• 2013 – This low kicked off a sharp 100 plus pt rally in to September opex

2001 – just a slow fall that then cascaded in to September

2000 – Low was on 28-Jul-00 and market rallied all month to 1-Sep-00 and then reversed

1998 – Low was on Tuesday, September 1st

Since 1998, there has never been a sharp rally and collapse (ie. a V Top), though these have frequently been seen in the month of July.

FOMC Meeting (July 25^th & 26^th) Turning Point Preview for July 2017:  (as of midday on Tuesday, July 25^th – day before FOMC)

The Fed meetings that do not have a press conference occur in January, April, July and October. Overall, the SPX has had significantly smaller changes on the day of these non press conference Fed days.   The median difference between the press conference days and non press conference days is almost 10 SPX pts.

But that does not mean the market has not been turning around these non press conference days. In fact, since January 2015 there have been many more MAJOR turns than minor turns around these non press conference Fed meetings, but most of the turns have occurred before or after the Fed day (just May 17 and Apr 16 have turned on Fed day), so they have been driven by other factors than just the FOMC meeting and announcement

• May 17 – minor bottom on Fed day (employment week) and a 6 day rally
• Jan 17 – MAJOR Bottom the day before the Fed day and the start of the strong all month rally in February
• Nov 16 – MAJOR Bottom on employment day and the start of the epic Trump rally
• Jul 16 – minor top on the Monday after and a 31pt pullback, the largest in 4 weeks
• Apr 16 – MAJOR TOP on Fed day and the start of a 3 week pullback in to May opex week
• Jan 16 – MAJOR Top on the Monday after FOMC and the final decline of the Jan-Feb 16 sell off
• Oct 15 – MAJOR Top 4 days after and then a 95pt slide in to November opex week
• Jul 15 DOUBLE Turn – bottomed on the Monday before the FOMC after a sharp one week sell off and then topped again on the Friday after the FOMC
• Apr 15 – minor top 2 days before Fed Day and a 48pt pullback in 3 days
• Jan 15 – MAJOR Bottom on the Monday after and the start of a massive February rally

July FOMC Meetings (July 25^th & 26^th – NO press conference)

The FOMC meeting has shifted around from early to mid August to now late July. In general, non press conference meetings have been less significant, particularly if there is also no employment report during the week.

Overall, there does not seem to be any strong edge now with the July FOMC meeting. It is more dependent on the market conditions AND the end of July / early August dynamics.

1. 2016 (26^th&27^th of July) – Market had been in a relentless rally all of July. Market topped briefly on the Monday post FOMC and fell 31pts which was the largest pullback in 4 weeks
2. 2015 (July 28^th – 29^th) – Bottomed on Monday before and rallied 52 pts to the Friday after
3. 2014 – (Jul 29^th – 30^th – pre employment) minor bottom on employment day – two days after FOMC. Market had peaked on the Thursday, the week before and had pulled back a bit. The market was unchanged on Fed day, but then fell sharply (-39pts) the day after Fed day.
4. 2013 – (30-31-Jul: – pre employment) MAJOR TOP 2 days after on employment day After a relentless rally that barely paused all of July, the market continued to run post FOMC in to the employment day, the market topped near the close and fell for the whole month of August
5. 2012: (31-Jul – Aug 1^st : pre employment) – topped on the Monday pre FOMC as it was VERY OB after a huge 6 day post opex bounce and then fell through FOMC till the day after where it bottomed and bounced.

FOMC Meeting Post opex   (See detail data below)

While post opex week FOMC meetings were reasonably common until March 2013, there has only been one Post Opex FOMC meeting since then in September 2016. That particularly meeting was a MAJOR top on the day after the FOMC after a strong rally on Fed day.

There have definitely been turns around these post opex FOMC meetings, but it is not clear whether they are opex or FOMC related or a combination of the two.

END of July / Early August

 The end of July / early August quite frequently is a transition period for the market. Quite frequently, but not always there is a countertrend rally or fall during this period – many times it is a double turn.

1. 2016 – In a persistently bullish month, the only slight weakness since early in July was seen from Monday, August 1^st to Thursday, August 4^th.
2. 2015 Double turn – minor bottomed day before FOMC just below 200 day MA at 2064 on Monday, July 27th and bounced till 31-Jul at 2114 before declining again
3. 2014 – Double Turn Market rallied to Thursday, July 24th at 1991 – and rolled over – minor bottom on employment Day Friday, August 1st, but bounce just lasted to the 4th and then final corrective low was on Thursday, August 8th
4. 2013 Rally stalled from 23th to 26th and then continued until MAJOR TOP on Friday, August 2nd at 1710
5. 2012 – Double Turn – Market peaked on Monday, July 30^th and pulled back to Thursday August 2^nd (FOMC week)
6. 2011 – not seen – Post opex rally ended on Thursday, July 21^st and the market fell dramatically until Tuesday, August 9^th.
7. 2010 Double Turn- Market pulled back from Tuesday, July 27th to Friday, the 30th and then rallied again to Wed, Aug 4th before stalling and falling from Monday, the 9th
8. 2009 – brief pullback from Mon, 27th to Wed 29th and then more of a stall and pullback on Friday, August 7th
9. 2008 : Post opex pullback ended on Monday, July 28th at 1234 and rally continued to 11-Aug
10. 2007 After July opex top – sharp bounces on Wednesday, the 1st and then Monday, the 6th of August

Current Conditions

NEW All time highs and one of the higher daily RSI (9) pre FOMC at 74 that has been seen on the day before an FOMC meeting.

• The last high daily RSI reading pre FOMC was in Dec 16 when the RSI was 84 and the market had a quick one day 30pt pullback from the day before Fed day to Fed day, but that was it for the sell off.
• Out of the 84 Fed meetings since 2007, only 5 have had RSI readings above 75. Three of those were in the persistent market of 2013 (Jan 13 – rally continuation, Sep 13 MAJOR Top and Oct 13 – minor top) and the other one was in May 2007 – that was just a minor top before the market continued higher.
• The market is also Hourly OB and 10 min OB. Hourly OB on the Tuesday post opex when there has not been a significant sell off during opex week is a reliable sell signal WHEN the market is NOT persistent – but right now the market is persistent, so it is not a signal that can be used to justify selling.

Bottom Line

The market is back in its persistent mode and this persistent mode must be respected until it has clearly ended. The two recent July persistent modes were in July 2013 and July 2016.

• In July 2013 there was a brief Wednesday post opex to Friday post opex sell off before the market continued higher until August employment day and then sold off most of August.
• In July 2016, there was a brief sell off at the start of August, but the market remained persistent until post Labor Day in September.

If the market was not back in its persistent mode, a number of previously reliable, high probability sell signals would be flashing including gap up on Tuesday post opex and hourly sell signals on the Tuesday post opex…. But when the market is persistent, particularly in January and July, these signals do not always work…..

It is possible that the FOMC and the power of the post opex forces will put an end to the current rally, particularly with the high daily RSI pre the FOMC meeting, but the persistence of the market must also be respected.

I do not have a strong view. I can provide historical justification for the market to top out and fall in to August (many of these were covered in the July opex preview like the SPX above its upper daily bollo band), but the persistent bull has also taught me that the market can and will remain persistent through numerous turning points.

For now, the market continues to be impressive and persistent and the market’s persistence must be respected.

I will be back next week with the August preview – remember August is a month that is generally ALL about providing a good buying opportunity at some point during the month (though this did not happen in August 2016)

-D

DETAIL DATA

FOMC – The week after Opex

While post opex week FOMC meetings were reasonably common until March 2013, there has only been one since then in September 2016. That particularl meeting was a MAJOR top on the day after the FOMC after a strong rally on Fed day.

There have definitely been turns around these post opex FOMC meetings, but it is not clear whether they are opex or FOMC related or a combination of the two.

• • Sep 2016 – The market had bottomed on Opex Monday, but had done very little until a strong rally post a dovish press conference from Yellen. The market gapped up on the day after the FOMC meeting and MAJOR topped and fell sharply for a few days before slowly heading lower in to the November lows.
  • Mar 2013: Topped on opex Thursday and fell in to the day before Fed – Tues post opex and then bounced in to early April – quite choppy
  • October 2012: MAJOR Topped on the Thursday of Opex week and fell through the FOMC meeting – bottoming two days after – really quite a rare occurrence…..
  • June 2012: Topped on the day before FOMC – the Tuesday post opex and fell for 6 days and 54 pts
  • April 2012: Major Bottomed on the Monday post opex which was the Monday before the FOMC and rallied hard in to the 1^st of May
  • Jan 2012: Made a minor top on the day after the FOMC and fell for 33 pts and 4 days
  • Sep 2011: Had a countertrend rally up all during opex and then MAJOR topped on the Tuesday post opex which was the day before Fed
  • June 2011: Market had made a MAJOR bottom on Opex Thursday and bounced in to the FOMC – but fell on Fed day for 1 day and 36 pts before resuming rally
  • Sep 2010: Minor Top – Quiet opex week – SPX then topped on Fed day, but just fell for 3 days and 26 pts
  • June 2010: Major Top Gapped up on the Monday after opex pre FOMC and that was the top and then fell till July employment
  • Sep 09: Major Top – market had peaked on Opex Thurs and Fell till Monday after opex and then rallied in to Fed day (Wed post opex) and then fell again till October employment – down 60pts
  • June 09: Minor Bottom post opex – Markets fell hard on Monday post opex and then made a low on the Tuesday after opex which was the day before FED day and then rallied for a week and 44 pts
  • June 08: Bounced from day before FOMC and on FOMC day and then fall continued
• • Mar 2007: Minor topped 2 days after FOMC and fell for a week and 31pts, but SPX had MAJOR BOTTOMED on the Wed of opex week having fallen hard for a few weeks

Opex Preview and ECB Comments for July 2017  (Preview as of mid afternoon on Wednesday, July 19^th, 2017)

In the July preview, I noted the following historical points:

FOR THE BULLS:

1. The high for the year has not been in June since before 1950. Right now, the all time high is on Monday, June 19^th at 2454
2. The July high is almost always higher than the June high unless the market is very bearish. The last time the June high was not exceeded in July was in 2010.
3. The high for the month of July is RARELY on or near the first trading day of the month. The last time was in 2008 (Wed, July 2^nd) and before that was during the 3 years that had significant July sell offs (2004 – July 26^th low, 2002 – July 24^th low and 2001 – July 24^th low)

FOR the BEARS

1. It has been a LONG time since the SPX has traded at its 20 week MA (Cobra has cited something similar to this a fair amount this spring). The 20 week MA is at 2393. It was last touched during the week of November 7^th last year. This is by far the longest duration rally without a touch of the 20 week MA since the bull market began in 2009. In fact, it is the longest period since 1995.
2. Also, one must go back to 1995 for the smallest pullback in the first half of the year. Back in 1995, the largest pullback in H1 was 1.7% and in 2017 it was 2.8%. Interestingly, 2015 was another year with just a very small maximum pullback (3.6%) during the first half of the year and the SPX had a very difficult 3^rd quarter.
3. There has also only been one year since 1998 that has not had an April – July correction of some significance in terms of either time or price. The minimum duration correction was 14 days (5.2% in 2003). That year was 2014. While the SPX did manage to slightly surpass its early July high on July 24^th after a sharp rally from its opex Thursday bottom, the SPX did fall almost 100pts from July 24^th to August 8^th.

I have highlighted them again, as all three points for the Bulls have actually already occurred.

While the historical pattern, to date, has favoured the bulls, the July opex history now shifts towards the bears, UNLESS the persistent bullishness that was seen in 2013, the summer of 2016 and since the election continues to persist.

July Opex

July Opex has a very STRONG record for turns (many of them MAJOR) – though when the market has been very OS in June (2013 and 2016) or made significant lows during the 2^nd week of July (2005 and 2009), the market has continued its rally or just had a minor top (2013). The market has not experienced that type of oversold condition since the May opex bottom.

• MOST, but not all turns have occurred post opex. Since 2007, there are just three exceptions. There was a minor opex Thursday bottom in 2014 and an opex Thursday top in 2012 that resulted in a very powerful 5 day 52pt sell off and the MAJOR bottom below the lower bollo on opex Tuesday in 2008
• Oddly, in recent years most turns have occurred between the 18th and 20th of July.   The other popular date has been the 24th with MAJOR Bottoms in 2000 and 2001 post opex on that date and the minor top in 2013 occurring on that date as well. This year July 24th is on the Monday post opex, which is by a slight margin the most popular opex period turn time – just something to keep in mind.

Since 1998:

• MAJOR TOPS: SIX   (1998, 1999, 2000, 2007, 2012, 2015)
• MAJOR Bottoms SIX   (2001, 2002, 2006, 2008, 2010, 2011)
• Minor tops   TWO (2003, 2013)
• Minor Bottoms TWO (2004, 2014)
• Rally continuations – THREE (2005, 2009, 2016)

Recent Opex Weeks

Other than the rally continuation in February, the SPX has had a series of primarily minor turns during 2017.

• June 2017 (FOMC during opex week) – minor top on Monday post opex and an 8 day 34pt pullback
• May 2017 – MAJOR Bottom on Opex Thursday – Sharp Opex Tuesday to Opex Thursday sell off and then a strong rally to new highs in to June
• April 2017 minor top on Wednesday post opex – Market bottomed below the lower bollo on the Thursday before opex week (and Good Friday) and rallied during opex week. It then accelerated higher post opex on the French election results. It had a minor top on the Wednesday post opex and pulled back slightly for a week. (MID and RUT had much larger pullbacks)
• March 2017 –(FOMC during opex week) MAJOR TOP on Opex Wednesday post FOMC – market pulled back particularly strongly on the Tuesday post opex and bottomed with a gap down below the lower bollo on Monday, march 27^th
• Feb 2017 Rally continuation – Market broke out on Feb 9^th and continued higher until topping on March 1^st
• Jan 2017 (Inside week) – minor bottom on Monday post opex – market had an inside week and broke the range lower on the Monday post opex, bottomed and immediately rallied till the Thursday before pulling back again

ECB Meetings   (ECB Meeting is pre market on opex Thursday)

When the ECB changed to a 6 week schedule in January 2015, the market started to make a significant number of MAJOR turns either shortly before or shortly after the ECB meeting.

• The SPX did bottom on the ECB meeting day in March 2017, the day before a late employment report, but other than that turn there has not been any particularly distinct correlation between turns in the SPX and the ECB meeting date since March 2016.
• Still, it is good to be aware of the fact that there is a potentially market moving event that generally occurs with the Draghi press conference starting at 8:30am on Opex Thursday morning.
• The last two opex week ECB meetings were in January 2017 and October 2016. Both turned on the Monday post opex a few days after the ECB meeting. The ECB meeting did not appear to have any particular impact on the SPX during either of those opex weeks.
• The one technical condition to highlight is the SPX is above its its upper daily bollo band. This condition does lean slightly bearish as opex periods that have seen the market trade above the upper bollo during opex period used to have a bearish bias through April 2016 (MAJOR TOP on Wednesday post opex). Alas, there have been 6 instances since then and all have just seen the market stall / minor top before heading higher. The stats since 2007 with the SPX above the upper bollo band during the opex period are as follows:
• The current conditions are somewhat OB, but OB during the middle of opex week does not provide a trading edge. The daily RSI (9) of 71 and MFI (14) of 58 does not provide any edge with relation to opex turns.

CURRENT Conditions:

• MAJOR TOPS (17) – At least 50pt pullbacks, if not much more significant and long lasting tops.
• Minor Pullbacks (17) – can be just a few days and generally back to at least the middle of the opex week range if not below it.
• NO PULLBACKS (5) – Normally a major significant low that month (Oct 2013, July 2009) or the previous month (Apr 07). Though, Feb 2017 was just a breakout to new all time highsAgain: This edge has not been seen since April 2016 – but it is a very strong edge for July opex with only July 2016 as the only July exception.
• The persistent bull continues to be strong and persistent.   All of the unusual market characteristics that I covered in the July preview still exist.

BOTTOM Line:

• If July opex follows history, then it is possible that the Bears might enjoy the weeks following July opex a bit more….
• Though given the way the market has traded in 2017, and if the market characteristics that really have existed since Spring 2016 continue, then the persistent bull might only allow a minor top and pullback to occur.

As a reminder, the ECB is tomorrow, opex Thursday. The ECB has had a limited impact lately. The FOMC is next week. I will post an FOMC preview early next week.

While the market does continue to follow the historical patterns to a certain extent, their impact has been much more limited given the narrow ranges and low volatility. For now, it seems best to stick with what is working, as there is no telling when these persistent bullish periods will come to an end…. Though July opex does provide one of the stronger historical edges.

I am on vacation in Maine with my family, so posting will be light.

-D

July Opex Detail Info

• 2016 – Rally continuation – After the significant BREXIT bottom in late June, the market was persistently bullish with very limited pullbacks after a very strong rally in to opex week. Market stayed strong until early September
• 2015 – MAJOR TOP on the Monday post opex (July 20^th) and a sharp 69pt drop to the 200 day MA on July 27^th
• 2014 – Minor bottom on Opex Thursday (July 18^th) – a strange week with a Wednesday high and then a sharp move lower in to a Thursday low at the lower bollo and then a bounce for a week to the upper bollo – topped on Thursday post opex and fell hard in to a second week of August low
• 2013 – Just a minor top on the Wednesday (July 24^th) after opex, which was a surprise as we were up relentlessly all of July, but the market only pulled back for 3 days and 25 pts before topping on August employment day
• 2012 – Double Turn There was a MAJOR TOP on opex Thursday (July 19^th) and a MAJOR bottom on the Tuesday post opex (July 24^th) – very volatile
• 2011 Major bottom on Monday post opex (July 18^th) and a strong 3 day 51 pt bounce before the summer slide resumed
• 2010 Double Turn Primary turn was a Major Bottom – Tues after opex (July 20^th) and a strong rally to July 27^th. SPX did make a high for the week on opex Tuesday and sold off 38pts in to the post opex low
• 2009: Made a very strong bottom on the Wednesday the week before (post holiday and post opex) and just rallied the rest of July with opex having ZERO impact
• 2008 Major Bottom on opex Tuesday (18^th) as SPX had been sliding for weeks and was very oversold
• 2007 Major Summer top on Opex Thurs (July 19^th) and a long slide that did not end till August opex week
• 2006 MAJOR Bottom on Opex Tuesday (18^th) after a slide from the beginning of the month – the low was a higher low re-test of the June opex low
• 2005 Rally continuation – Market bottomed with a BIG gap down and rally on the Thursday before opex week
• 2004 minor bottom on Monday post opex (July 19^th) – SPX was in a strong run lower along the lower bollo band. It did bottom on the Monday post opex to bounce up to test the 20 day MA and then continued lower till another bounce on July 26^th. Final bottom was in early August
• 2003 Minor top on Opex Monday (July 14^th) – June pullback had ended on July 1^st at the upper bollo. SPX then rallied to the upper bollo and topped on opex Monday for the month. First bounce was on Monday post opex.
• 2002 – MAJOR Bottom on Wednesday post opex (July 24^th) – Market had been falling relentlessly since March and just collapsed during July. It bottomed with a daily RSI 9 of 13.
• 2001 – MAJOR Bottom on Tuesday post opex (July 24^th) – Market had rallied in to opex week and topped on opex Thursday and then had a rapid collapse to new lows for the month below the lower bollo post opex. Market then rallied in to early August
• 2000 –MAJOR TOP on Opex Monday (17^th) – The SPX started a relentless rally on July 6^th that ran along the upper bollo – it topped 6 pts above the upper bollo and fell sharply till July 28^th
• 1999 – MAJOR Top on Monday post opex (July 19^th) SPX had a strong run higher from early June. The move accelerated above the upper bollo on June 30^th and kept running higher until topping on the Monday post opex. It then collapsed and ran all the way down to the 200 day MA on August 10^th
• 1998 – MAJOR TOP on Monday post opex (July 20^th) – After bottoming in mid June, the market broke out in late June and went relentlessly higher until peaking on the Monday post opex in an emerging markets driven collapse that did not end until early October.

July 2017 Turning Point and Employment Review    (as of close of business on Monday, July 10^th)

 This is definitely one of the most unusual markets that I can remember. The SPX has had TWO wide range days in the last month (Friday, June 9^th and Thursday, June 29^th) and the entire week’s trading of the following week has been contained within the range of the wide range day….(in fact, the SPX is still within the range of JUNE 29^th) it almost does not seem possible to have something that unusual occur twice in a month.   For me, it does mean that some of my work seems slightly less relevant… BUT it should be noted that the day the range broke in June was the day of the all time high and the market reversed.

I have been delaying this July preview in the hope that there might be a move outside of the range from the 29^th. But delaying it further, no longer makes sense.

July Perspective

Until 2013 and 2016, the market path during the month of July had one of two distinct signatures. It was either a V shaped reversal or a clear upward or downward sloped trading range marked by sharp reversals in almost every week. In 2013 and 2016, with the reversals higher after sharp sell offs during the 4^th week of June with multiple days below the lower bollo, the market just trended higher during the month of July.

Given the tight trading range during the month of June, the conditions that existed in 2013 and 2016 do not exist.   Given the SPX is also within the June 29^th range, there is no indication of whether the SPX might have an upward or downward sloped range during this month.

4^th of July Holiday and 1^st trading day of July

The first trading day of July was up day for the 17^th time in the last 20 years. The highs last Monday also created a short term pre 4^th of July holiday top.   There have only been a few recent pre 4^th of July holiday tops like the one that has just occurred. As a reminder, most mid week 4^th of July turns have been MAJOR ones which would imply a 50pt or more drop from last Monday’s 2439 high.

• In 2014, the SPX topped on Thursday, July 3^rd (employment day) and fell for a week and 32pts before starting a rally on the Thursday before opex week that finally ended on Thursday, July 24^th at the upper bollo
• In 2006, similar to 2017, the market topped on the first day of July and at first it gently slid and then it fell sharply during the last 3 days of the 2^nd week of July and bottomed on opex Tuesday, July 18^th at the lower bollo band.

July Employment

In 2017, the SPX has been consistently turning on employment day or before employment. The turns have all been small and lasted between 5 and 8 days. With the rally off of last Thursday’s low at 2408, it is possible that the market is in a similar short term move higher.   Still, really no edge right now, except to note that the SPX has turned before employment or on the employment day every month since last November, which is again unusual.

Rallies in to Opex week

One of the more remarkably consistent edges that the market has displayed since last October is the rally in to opex week. The last time the market did NOT rally in to opex week was in September 2016. Here is when the market bottomed and bounced in to opex week and then what happened during opex week:

• Oct 16 – Thursday before   . MAJOR TOP on Monday post opex
• Nov 16 – Friday week before (employment day) – Rally continuation
• Dec 16 – Thursday week before (pre employment) – minor top on Opex Tuesday
• Jan 17 – Thursday before (with a very tight range) – minor bottom on Monday post opex
• Feb 17 – Wednesday before   (primarily as RUT made a serious low on this day) – Rally continuation
• Mar 17   – Thursday before   (pre late employment) – MAJOR TOP on Opex Wednesday
• April 17 – Thursday before (before Good Friday holiday) – MAJOR rally and a minor top on Wed post opex
• May 17 – Thursday before – Opex Tuesday high and then a significant sell off and a MAJOR Bottom on Opex Thursday
• June 17 – Friday before (Big range day) and a small rally in to opex week – then all time high Top on Monday post opex

Thursdays have been a VERY popular day for turns in 2017, especially for bottoms.

The last time the SPX did not rally in to July opex was in 2011 when it topped on the Thursday before a late employment report after a strong continued rally along / above the upper bollo band. Since 2007, the only other year the market did not rally in to July opex week was 2008.

July Opex

Except for 2009 (major bottom week before) and 2016 (relentless rally) , July opex has had a VERY strong record for turns – many of them MAJOR..

• MOST, but not all turns have occurred post opex. Since 2007, there are just three exceptions. There was a minor opex Thursday bottom in 2014 and an opex Thursday top in 2012 that resulted in a very powerful 5 day 52pt sell off and the MAJOR bottom below the lower bollo on opex Tuesday in 2008
• Oddly, in recent years most turns have occurred between the 18th and 20th of July.   The other popular date has been the 24th with MAJOR Bottoms in 2000 and 2001 post opex on that date and the minor top in 2013 occurring on that date as well. This year July 24th is on the Monday post opex, which is by a slight margin the most popular opex period turn time – just something to keep in mind

FOMC (July 25^th & 26^th – NO press conference) and ECB on July 20^th

 Increasingly, the non press conference FOMC meetings are having less and less impact on the market. The only time there seems to be a significant move that is also potentially related to the FOMC meeting is when there is another turning point near the FOMC meeting. This is what occurred with the Nov 16 meeting as employment was two days later and the market MAJOR bottomed on employment day.

The same lessening impact has also been seen with the ECB meetings, though with the ECB on opex Thursday this month, it is possible that there is a greater impact and movement around the ECB meeting, though this is probably due to opex, not the ECB. 

END of July / Early August

 The end of July / early August quite frequently is a transition period for the market. Quite frequently, but not always there is a countertrend rally or fall during this period – many times it is a double turn.

• 2016 – In a persistently bullish month, the only slight weakness since early in July was seen from Monday, August 1st to Thursday, August 4th.
• 2015 Double turn – minor bottomed day before FOMC just below 200 day MA at 2064 on Monday, July 27th and bounced till 31-Jul at 2114 before declining again
• 2014 – Double Turn Market rallied to Thursday, July 24th at 1991 – and rolled over – minor bottom on employment Day Friday, August 1st, but bounce just lasted to the 4th and then final corrective low was on Thursday, August 8th
• 2013 Rally stalled from 23th to 26th and then continued until MAJOR TOP on Friday, August 2nd at 1710
• 2012 – Double Turn – Market peaked on Monday, July 30th and pulled back to Thursday August 2nd (FOMC week)

 Bigger Picture Historical Points – for awareness

There are a few bigger picture historical points that will provide encouragement to both BULLS and BEARS. Again, these are just historical facts.

FOR THE BULLS:

• The high for the year has not been in June since before 1950. Right now, the all time high is on Monday, June 19^th at 2454
• The July high is almost always higher than the June high unless the market is very bearish. The last time the June high was not exceeded in July was in 2010.
• The high for the month of July is RARELY on or near the first trading day of the month. The last time was in 2008 (Wed, July 2^nd) and before that was during the 3 years that had significant July sell offs (2004 – July 26^th low, 2002 – July 24^th low and 2001 – July 24^th low)

FOR the BEARS

• It has been a LONG time since the SPX has traded at its 20 week MA (Cobra has cited something similar to this a fair amount this spring). The 20 week MA is at 2393. It was last touched during the week of November 7^th last year. This is by far the longest duration rally without a touch of the 20 week MA since the bull market began in 2009. In fact, it is the longest period since 1995.
• Also, one must go back to 1995 for the smallest pullback in the first half of the year. Back in 1995, the largest pullback in H1 was 1.7% and in 2017 it was 2.8%. Interestingly, 2015 was another year with just a very small maximum pullback (3.6%) during the first half of the year and the SPX had a very difficult 3^rd quarter.
• There has also only been one year since 1998 that has not had an April – July correction of some significance in terms of either time or price. The minimum duration correction was 14 days (5.2% in 2003). That year was 2014. While the SPX did manage to slightly surpass its early July high on July 24^th after a sharp rally from its opex Thursday bottom, the SPX did fall almost 100pts from July 24^th to August 8^th.

Current Conditions

With a daily RSI of 50 and the very compressed bollo bands, the current technical conditions are very neutral.

• Only technical note that is interesting is that the market has rallied almost immediately when the MID has gotten an hourly RSI buy signal. The MID has had buy signals on May 31^st, June 21^st, June 22^nd, June 29^th and July 6^th and all have resulted in decent rallies for the MID.

BOTTOM LINE

The lack of volatility and the very tight ranges – especially the tight ranges within the two wide range days of June 9^th and June 29^th is extremely unusual. For now, there is very little edge in the market, though there are some things to be aware of:

• A move lower during this week might set the market up for the usual rally in to opex week that has been occurring every month since October 2016, especially since the market very rarely falls in to July opex week.
• If the market does move higher in to opex week, then a top late in opex week or more likely on / near Monday, July 24^th (pre FOMC) becomes higher probability.
• Lastly, Thursdays really have been a more frequent than usual turn day during 2017.

Bigger picture, the bears do have some historical support for a move lower. The big question concerns when that move might begin. It could occur in July, but there are other years in the past that have waited for August or September for true market weakness to occur.

For now, the market is great for people who like well defined trading ranges. For most others, it is best to be patient and wait for a real market edge to be revealed.

ENJOY your summer holidays!

-D

4^th of July, 2017 Preview  (as of close of business on Friday, June 30^th):

The period around the 4^th of July is one of the potentially more difficult calendar periods in the market year to really understand what is going on, as there is the 4^th week of June turn, the normally very bullish 1^st trading day of July, the 4^th of July holiday and lastly July employment.

• The key thing to understand about all of these potential turns is that there are not always turns for each of these market events, but generally one of them does produce a MAJOR TURN. The challenge is figuring out which one is the primary major turn.
• In 2016, it was the MAJOR Turn during the 4^th week of June with the Brexit Bottom on Monday, June 27^th. After that, the market was basically off and running
• In 2015, the MAJOR BOTTOM was post the 4^th of July and post employment
• In 2014, there were a series of minor turns
• In 2013, it was the MAJOR post June opex bottom during the 4^th week of June and the market then just ran higher
• For 2012, there were big 50pt or more swings for most of the turning points
• For 2011, the summer top was on the Thursday before a late employment report
• For 2010, THE Summer bottom was on Thursday, July 1^st pre employment and pre the 4^th of July
• For 2009, the end of the first significant correction and the summer low was on the Wednesday, post employment and post the 4^th of July holiday

Here are the other key points to be aware of:

1^st trading day of July

• Since 1998, on the first trading day of July, the SPX has been up 16 times (largest gain 19pts in 2011 and down 3 times (2010, 2004 and 2002 – largest loss 21pts in 2002). This is an extraordinary track record for any given market day.

4^th of July Overall

• The 4^th of July has seen 4 major turns in recent years (2009, 2010, 2011 and 2015) with only the 2010 turn occurring before the holiday. All have been in combination with employment turns
• Otherwise, the 4^th of July has been a series of minor turns since 2007 with 2007, being the only year there was no turn as that year had a MAJOR 4^th week of June bottom

4^th of July midweek holiday

• There have been 7 mid week 4^th of July holidays since 1998.
• Only one of them (2007) did not produce either a 50pt rally or a 50pt decline in the SPX
• Primary turn before the holiday: 5 times 2013, 2012, 2006, 2002, 2001
• Primary turn after the holiday: Once – 2000
• No turn: Once – 2007

1. 2013 (Thursday Holiday) MAJOR BOTTOM – but it would have been a tough one to play. Like in 2011 and 2012, the SPX turned the day before the employment report. In 2013, there was a brief 3 day pullback from Monday, July 1^st to Wednesday, July 3^rd after soaring from the post June opex low and this pre holiday low was the last chance to get in before the market screamed higher for the rest of July
2. 2012 (Wednesday Holiday) MAJOR TOP – Super OB before the employment report – topped at the close on the Tuesday before the holiday – though it was safer to sell on the Thursday before employment post holiday. Fell hard for a week and 52pts
3. 2007 (Wednesday Holiday) No turn – rally continued until July 9th and then there was a minor top
4. 2006 (Tuesday Holiday) – MAJOR TOP Day before. Rallied sharply from 4th week of June bottom on Wed, June 28th and topped at the close at the upper bollo on the first trading day of July, the 3rd, pre holiday.
5. 2002 (Thursday Holiday) MAJOR BOTTOM (and a MAJOR TOP!) Market fell hard in to the Wednesday before the holiday. Market was in a STEEP downtrend. Bottomed 14 pts below lower bollo and had a HUGE gap up on employment day the day after the holiday, but peaked on the Monday and fell super hard – DEFINITELY a TURNING POINT!
6. 2001 (Wednesday Holiday) 2001 – MAJOR TOP – two days before. Had bottomed below the lower bollo on opex day in June and rallied for a few days, then pulled back to a slightly higher low on Tuesday, 26th and topped at 20 day MA after strong rally on The Monday before the holiday, the first trading day of July
7. 2000 (Tuesday Holiday) – MAJOR Bottom two days after Holiday – Market had topped on Monday post opex, fell till Thursday June 29^th at lower bollo and a bit below 40 day MA – had bounced on June 30^th and July 3^rd and then fell hard on day after holiday and bottomed on Thursday, July 6^th (Could also be seen as a MINOR top at the close on Monday, July 3^rd and a two trading day pullback)

4^th of July after June Opex Tops

There have been 11 tops for June opex. Unfortunately, the July 4^th turns have been all over the place with no consistency

• Pre Holiday Bottoms – 2010 (Thursday pre employment), 2003 (Tuesday before), 2002 (and then a top on Monday post employment)
• Pre Holiday Tops – 2014 (Employment Thursday), 2012
• Post Holiday Bottoms – 2015 (Tues post employment too), 2008 (minor bounce post employment), 2000 (post holiday / pre employment)
• Post Holiday Tops – 2005, 1999 (minor top)
• No turn – 2007 (rally continuation)

4^th of July after 4^th week of June bottoms

There have been 14 (potentially 15) 4^th week of June bottoms since 1998

• Tops before the holiday – FOUR 2016 (minor top on Friday before), 2012, 2006, 2001 (Major – 2 days before)
• Bottoms before – THREE 2013 (MAJOR) , 2010 (Major), 2002 (brief bounce)
• Tops after: THREE 2011 (MAJOR Thursday after pre employment), 2005 (minor), 1999 (minor)
• Bottoms after: TWO 2009 (Wed after post employment), 2000 (two days after)
• None: ONE 2007 (Rally continuation

Holidays in 2016 & 2017

• Holidays have continued to be consistent turning points. Interestingly, the tops have all been minor since MLK in 2016 except for post Labor Day last September, while the bottoms have all been MAJOR ones (like the one before Good Friday in April)
• The only recent holiday that did not have a turn was the rally continuation for President’s Day in February

Employment in 2016 & 2017

• Employment has also been a consistent turning point with February 2017 & July 2016 being the only recent rally continuations.
• All of the turns in 2017 have been minor (bottoms in March and May and tops in Jan and June)
• Interestingly and somewhat oddly, all of the employment turns since August 2016 have been pre employment or on employment day. Previously, they were much more consistently post employment.

Current Conditions

• While the SPX did trade below the lower bollo on this past Thursday, it is fairly neutral technically as the range has been so tight during the month of June.
• There is no edge when the technicals are so neutral, though the proximity to the lower bollo does suggest at some point in time there should be a bottom and a rally, one does not need to occur.

Bottom Line

All of the above information is meant to demonstrate that there have always been quite a few market twists and turns during the period between the 4^th week of June and the 2^nd week of July, and the key takeaway should be that at some point, it is likely that the combination of the 4^th week of June, July 4^th and July employment will produce a major turn. The challenge, as always, is when.

• The narrow ranges definitely mean there are some caution flags that the bulls need to be aware of. I will cover these next week in my July monthly preview.
• The low this past Thursday does provide a potential platform for a rally in to next week, especially given the first trading day of July track record

Other than the 1^st trading day of July, there is still no clear edge as to when their might be a primary turn occurring. It may have already occurred this past Thursday or it could be post employment during the 2^nd week of July. For now, just expect quite a few twists and turns until the market sorts itself out.

As always, all of the above is only the historical perspective… and the market will do what it wants to do. My one concern is that this past Wednesday’s trade really felt like a 1^st day of the month trade (and on the charts it looks very similar to the period around March 1^st, 2017, which would not be good for the market until post employment)

ENJOY the holiday!

-D

QUAD Opex FOMC preview & review for June 2017  (Preview as of 1pm on opex Tuesday, June 13^th, 2017)

(Review as of late in the day on the Monday, post opex on June 19^th, 2017)

This preview / review will be in two parts. The first one is really a reminder on the Quad Opex / FOMC tendencies and also a review in general of June opex. The current market heading in to June opex has quite a split personality with the NDX being somewhat weak in the short term and the MID and RUT being strong with the SPX being in the middle. Overall, looking at the BIG picture, all of the indices are still very strong.

OPEX REVIEW     (as of late in the day on the Monday, post opex on June 19^th, 2017)

The FOMC meeting did not produce that much market action, but did seem to enable the small 25pt pullback from Tuesday’s highs to Thursday’s lows.   In terms of the opex week, there are a few points I noted on Friday evening that seemed right to review:

• Another Inside week for opex week – just like in April 2017 – Now there have been 9 inside weeks for opex week since 2007
• Tuesday high and a Thursday low – these are not that common. Though, right now it is like waiting for a bus, as this is the second month in a row that there has been a Tuesday high and a Thursday low. This is now the 11^th instance since 1998 (out of 234 weeks)
• Monthly VIX expiry – does it have an impact? I am not a VIX expert by any means, but the VIX expiry may have an impact on the market – just something to consider
• Post June opex turns – there have been a few tops in recent years, so something to be aware of

INSIDE Week for Opex week:

• The general evidence is that when the SPX has an inside week during opex week, the appropriate short term post opex strategy is to fade the break of the inside week, but one must be careful and judge the conditions. Some times it means fading the break on the same day, on others, it has meant waiting at least two days.
• In April 2017, this strategy did not yield much for the SPX as the break of the inside week range was a powerful 3 day breakout and while the pullback lasted a week, the pullback was minimal in terms of SPX points.
• In January 2017, the slight new low on the Monday post opex was faded almost and produced a good market rally almost immediately, while in October 2016, the range break higher was faded and the market had its final move in to the early November lows
• There has only been one Quad opex week that has been an inside week, it was in June 2007. It was a double inside week and the market broke the inside week lows at the end of June and then headed higher again.

This study would suggest the new highs in the SPX will be sustained for only a day or two before the market pulls back.

TUESDAY High and Thursday lows for opex week

• Tuesday highs for opex week occur about 15% of the time. While they have now occurred two months in a row, the last opex week prior to May 2017 that had a Tuesday high was August 2015.
• A Tuesday opex week high is usually paired with an opex Friday low, but obviously this has not happened in either May 2017 or this past opex week
• There have been 10 instances since 1998 of Tuesday opex week highs and Thursday opex week lows. 6 times the market rallied sharply off of the Thursday lows – though, unlike this past week, most of those lows occurred when the market hit the lower daily bollo (like in May 2017) or a key moving average (the 200 day MA in June 2011)
• Three times the market had a post opex bottom and the last instance that can not really be categorized was the super volatile period of Oct 2008.
• Given the Monday post opex rally, it should be noted that there was one powerful continued rally in August 1999 that had 4 powerful up days before the market topped on the Wednesday post August opex above the upper bollo band and reversed back below the opex week lows.

This study would suggest that the market should continue higher

MONTHLY Vix expiry – post opex this month

It has been some time since I have seen an article about the Wednesday expiry of VIX options, but I have been quietly tracking the expiry for some time and it does appear to have some potential impact lately. The VIX Options expire on the 3^rd Wednesday of every month. Some times that is during opex week, some times it is post opex. For some reason, right near the VIX option expiry there have been some significant market moves. It seems as though if the market is somewhat OB, the move is lower and if it is OS then the move is higher

• May 2017 (Expiry during opex week – market OB) – Sharp drop on Opex Wednesday – SPX down 44 pts
• April 2017 (Expiry during opex week – market OS) – Gap higher on Opex Thursday and a sharp move higher until Wednesday post opex
• March 2017 (Expiry post opex week – Market slightly OB) – Sharp move lower on Tuesday post opex. SPX down 29ptsThere is not enough data to support any solid conclusions in the short term, but I did pull together the following stats for VIX option Expiry post opex week since 2010:

• MAJOR TOPS – 9   (most recently in Sept 2017 on the day after FOMC and Vix expiry)
• MAJOR Post Opex Bottoms – 7   (Most recently January 2016)
• Acceleration higher after an opex bottom – 4 (Most recently Jan 15)
• No Impact – 9 instances – most recently the listless range experienced in Dec 2016 and July 2016

Bottom Line – Vix option expiry may have no impact, but ione must be aware of the possibility of a potential sell off like what was seen in March, the last time the VIX options expired post opex.

JUNE OPEX was the primary turn on Opex Thursday or will it be post Opex?

I have no idea. In June 2016, the SPX made an opex Thursday bottom and then rallied sharply for a week until the Brexit vote.

Since 2007, the SPX has had 4 post June opex tops. All 4 had lows earlier in opex week

• 2015 –(Opex Monday low) MAJOR TOP on Monday post opex Fell in to an Opex Monday double bottom low and then rallied sharply to test the May highs – test failed and Market fell 95pts to July 7th
• 2014: (Opex Monday low) minor top on Tuesday post opex – strong market all month – FOMC during the week had no impact and market kept pushing higher till the Tuesday post opex and then had a short 24pt pullback
• 2012 (Opex Tuesday low) A very choppy week that ended strongly with a MAJOR TOP on the Tuesday after that lasted for 6 days and 54 pts before surging in to July
• 2010: (Opex Monday low) Against the trend, rallied all week and then MAJOR topped on the Monday after and fell to its MAJOR Low in early July
• The market continues to be extremely strong. The dips that seem to be shorter and shorter in duration continue to be bought aggressively. The persistent bull is alive and well and must continue to be respected. From a purely historical point of view, there is no clear evidence for what the market might do next:
• Bottom Line:

• The inside range week for opex week argues for caution regarding the breakout to new all time highs on the Monday post opex
• The Tuesday high and Thursday low for opex week suggests the market has bottomed and should continue to rally (as last seen in May 2017 – though the market was more OS then)
• The VIX Option expiry could cause a short term selling event between Tuesday and Thursday (like was last seen in March 2017)
• June opex does have a history of producing post opex tops – but none of those tops had an opex Thursday low

Overall, from the perspective of history, there are a few potential caution flags, but in 2017 almost all of the caution flags have meant nothing or just a few days of weakness. Given that the month of June has not seen a market high for the year since some time before 1950, it is likely that any pullback will be bought and the market will rally to new highs in July. This is what occurred in 2014 and this is the year that 2017 most closely resembles so far.

One last point to remember for next week, there has been a LOT of turn activity during the 4^th week of June, which is next week. There have been 15 turns during the 4^th week of June. Some of them, like the post Brexit bottom in June 2016 have been quite significant. If relevant, I will post more next week on this point.

All of the above is a fair amount of info, but I am afraid not that much that is really actionable. Some times that is the way the markets work with my research.

-D

OPEX Preview   (Preview as of 1pm on opex Tuesday, June 13^th, 2017)

While the market did have its primary turn in December 2016 on opex Tuesday pre FOMC (a minor top), the primary turns for Quad opex weeks with an FOMC meeting are almost always POST FOMC. In March 2017, the turn was on Opex Wednesday post Yellen’s press conference near the close after the rate hike.

I have not seen much historical analysis of Friday’s outside day with a 6 trading day high and low. The Gap Guy said that such an occurrence had happened 20 plus times in the last 20 years. I do not remember such a day – certainly not on the Friday before opex week. There has not been a high like this past Friday’s before June opex since at least 1998. The only recent memorable Friday before opex week high was in September 2012 when the market was very OB and topped the day after QE3 was launched (The FOMC meeting was the week before opex). The market did not do much during opex week and then fell in to a Wednesday post opex minor bottom.

Per my previous reports, the SPX has rallied in to opex week every month since Oct 2016 and with the rally from Friday’s low, it also has occurred this month, especially with Tuesday’s rally. Unfortunately, as the SPX is still within Friday’s range, there really is no edge with respect to this rally from Friday’s lows.

JUNE Opex Overall

• MAJOR turns in almost every year – 2007 (opex day top), 2008 (Tues top), 2010 (Mon after Top) and 2011 (Thurs Bottom), 2012 (Tues after / pre FOMC Top), 2013 (Monday after Bottom), 2015 (Monday after Top) and 2016 (Post FOMC Opex Thursday bottom)
• 2009 there was a decent Tuesday after bounce for 8 days and 41 pts
• One other June opex quirk to remember – the SPX almost ALWAYS rally in to Friday’s open from Thursday’s close – UNLESS there has been a very strong rally on the Thursday – then it might not occur (it is actually a quad opex edge, but most evident in March and June)
• June opex has produced good buying opportunities in 5 years (2006 – low, 2009 – bounce, 2011 – low, 2013 – low and 2015 1 week bounce) and late / post opex selling opportunities in 5 years (2007 – opex day, 2010 – post, 2012 – post and 2014 – post, 2015-post) 2008 was just a fairly relentlessly down month with just one small bounce in to opex.
• Definitely watch the Monday and Tuesday post opex for potential turns. There was not one in 2016, but the Thursday post opex turn was certainly a BIG one thanks to the Brexit response

QUAD Opex WEEK

QUAD Witch option expiry has a BAD reputation – but it is actually a great time for traders. Interestingly, it is much more likely for QUAD opex to produce a MAJOR turn (move of greater than 50 SPX points) than a minor turn. Amazingly, there is an equal split between TOPS and BOTTOMS and turns of the major variety outnumber minor turns by close to 3 to 1. In 2015, ALL of the QUAD Opex weeks produced Major turns. In 2016, there were two major turns (June and Sept bottoms) and in March 2017, there was a MAJOR top on opex Wednesday post the FOMC

June Opex / FOMC

The last four years have been the only 4 years since 1998 that the FOMC meeting has been during June opex week. The general tendency for Quad opex weeks that contain an FOMC meeting (especially in March, June & Sept) is for the primary turn to be post the FOMC meeting. The 3 years between 2013 and 2015 all saw primary turns post opex. Two of the years (2013 and 2015) saw Double Turns while 2014 just saw a minor top post opex.

Given the rate hike expectations, here is what has occurred after the previous rate hikes:

• March 2017 – Market had rallied in to opex week and continued to rally until near the close on Opex Wednesday / FOMC day. The market then proceeded to pullback 78pts in 12 days. The big day for the move lower was the Tuesday post opex.
• Dec 2016 – Had topped on the Tuesday before the FOMC meeting and bottomed after a 30pt drop at about 3:15pm on Fed day. (SPX was down 18pts on Fed Day)
• Dec 2015 – Sold off in to opex week. Bottomed on opex Monday and rallied in to Opex Thursday’s open post the press conference and announcement and then sold off sharply till Friday’s close

For now, the only tendency one can continue to expect is a post FOMC announcement turn.

Current Conditions

The SPX is trapped within Friday’s range. There have been no interesting technical signals with respect to the SPX / SPY.

The MID did generate an hourly sell signal both on Friday and also today opex Tuesday.

• While this particular Friday signal did make money, hourly sell signals on the Friday before opex week, generally signal that one should not be short in to opex week, but that there might be a top for at least a pullback some time between Tuesday and Thursday of opex week
• There has not been an opex Tuesday RSI sell signal in the MID since Sept 2015. That opex week the SPX topped post the Thursday FOMC meeting in some wild price action

Bottom Line

Last Friday’s wide range day (compared to recent ranges) was rare and unusual. While the rally from last Friday’s lows is fairly standard (these days) for opex week as they have been occurring every opex week since October 2016. For now, there is no real edge in the market.

• Almost all of the primary turns Quad opex / FOMC turns occur post the FOMC meeting with many of them occurring post opex, though more recently the Quad opex turns have all been during opex week (June 16 – Opex Thursday, Sept 16 – Opex Monday, Dec 16 – Opex Tuesday and March 17 – Opex Wednesday)
• The current conditions in the SPX are neutral. The hourly sell signals in the MID do not provide any real edge.

For now, it is best to be patient and wait for the market to reveal its intentions post the FOMC tomorrow.

I will be back later in the week when there appears to be more potentially relevant information to provide.

-D

June Opex Detail

• 1. 2007: MAJOR TOP on Opex Day – fell for 12 days and 56pts before heading higher in to the Major July top
  2. 2008: Major top on opex Tuesday – was trending lower in to opex and then had a good 4 day bounce in to opex, but that was it and a long slide in to July
  3. 2009: Minor Bottom pre FOMC on the Tuesday after and then a one week bounce
  4. 2010: Against the trend, rallied all week and then MAJOR topped on the Monday after and fell to its MAJOR Low in early July
  5. 2011: MAJOR Bottom on the Thursday of opex week – was weak all month and then bounced strongly in to July employment – BUT it should be noted that the strong bounce initially stopped on the Tuesday after pre FOMC and then the low was re-tested, but held and then we soared
  6. 2012 A very choppy week that ended strongly with a MAJOR TOP on the Tuesday after that lasted for 6 days and 54 pts before surging in to July
  7. 2013; MAJOR BOTTOM – a volatile week with a strong rally in to opex Tuesday (the day before the FOMC) we then major topped and fell hard until the Monday after opex where we major bottomed and rallied strongly the whole month of July
  8. 2014: minor top on Tuesday post opex – strong market all month – FOMC during the week had no impact and market kept pushing higher till the Tuesday post opex and then had a short 24pt pullback
  9. 2015 – MAJOR TOP on Monday post opex Fell in to an Opex Monday double bottom low and then rallied sharply to test the May highs – test failed and Market fell 95pts to July 7^th
  10. 2016 – MAJOR Bottom on Opex Thursday post FOMC and a 1 week rally until the Brexit result caused a sharp market sell off.

June 2017 Turning Point and Employment Preview (as of late in the day on Thursday, June 1^st, 2017)

 The following is my monthly turning point preview. It touches on important and interesting historical information about the upcoming month.

This most recent month of May with its very narrow upward sloping trading range that ended with the sharp drop on Opex Wednesday in to the opex Thursday bottom was slightly unusual relative to most normal months of May with one exception – the opex Thursday MAJOR bottom which has now been seen in 3 of the last 4 years (2014, 2016 & 2017)

With today’s new high, the primary question for the SPX is whether it follows the upward sloping path that the SPX travelled in 2014 between roughly the 20 day MA and the upper bollo band that ended post July opex or is it more in line with 2007, 2009 and 2016 when the market rallied in to post employment tops and pulled back during the month of June.  The bulls are clearly in control, but other than 2014, the SPX has always had a multi week pause and pullback during Q2, so there are clearly two potential analogs for the market based on the trading history of the month of June since 1998.

June Perspective

The month of June is never a particularly straightforward month as it tends to have quite a few short term twists and turns.  In the detail section, I have provided a lot of the supporting evidence for the following key points about the month of June:

• JUNE has never been the HIGH for the year since at least 1950. June has been the low for the year just 4 times (June 62, June 65, June 06 & June 12)
• JUNE is a transitional month between May opex extremes and early July – even as late as July opex extremes
• JUNE is a month that produces quite a few substantial trading turns, but essentially, it is more of a trader’s market than a trend follower’s market
  • June is really the ultimate trader’s month – as there are almost always at least 3 solid turns, if not 4. The two recent exceptions were 2014 – that just had 2 small turns and 2013 that had 5 turns
• The May opex bottom is an interesting one as in 4 of the last 5 years that there has been a May opex bottom, there has been weakness in the SPX BELOW the April and May lows during the month of June. Those years were 2016 (June 27^th low, 2012 (June 4^th low), 2011 (June 16^th low) and 2010 (July 1^st low). The one exception is 2014 when the market had a steady rally until post July opex

June Employment

Overall, June employment is a very consistent month for turns with the Thursday before employment and the Tuesday after employment being the most consistent days for June employment inspired turns.

In 2016, the SPX had a MAJOR top on the Wednesday post employment and fell 69pts till opex Thursday. In 2015, the SPX had a minor bottom on the Tuesday after employment and in 2014, the SPX had a minor top on the Monday after employment

The only pre employment top in the month of June was during 2008 on the Thursday before. Otherwise, all of the June employment tops since 2007 have occurred post the report and only 2007’s occurred on employment day.  (11 tops and 7 bottoms since 1998)

In 2017, the last 3 employment reports (May – bottom on Wednesday before, April – top on Wednesday before and March – bottom on Thursday before) have all turned prior to the employment report. This is quite unusual.

2^nd Week of June

2nd Week of June is always important for turns – frequently it is double turns as the Thursday before opex week has seen quite a few important turns since 2008.   There have been only 3 years since 1998 that did not see turns in the 2^nd week of June. In each of those years (2011, 2006 & 2005), the market trended until reversing during the opex period.

In 2016, the MAJOR employment top on Wednesday, June 8^th was the turn in the 2^nd week of June

One must also remember the market’s tendency to rally in to opex week. It has occurred every opex week since October 2016.  (though the market did fall in to the opex week in June 2016)

June Opex  / FOMC

The last the last four years have been the only 4 years since 1998 that the FOMC meeting has been during June opex week. The general tendency for Quad opex weeks that contain an FOMC meeting (especially in March, June & Sept) is for the primary turn to be post the FOMC meeting. The 3 years between 2013 and 2015 all saw primary turns post opex. Two of the years (2013 and 2015) saw Double Turns while 2014 just saw a minor top post opex.

In 2016, the market MAJOR bottomed on Opex Thursday, the day after the FOMC meeting and rallied 53pts in a week before the BREXIT inspired fall.  In March 2017, the SPX topped on opex Wednesday, post the press conference and fell 68pts in 12 days.

For now, the only tendency one can continue to expect is a post FOMC press conference turn. 

4^th week of June, quarter end and early July

Finally, there has been a lot of turn activity during the 4^th week of June since 1998 – which should be understandable as it is post opex and for many years, it was also the week that contained the FOMC meeting.

I will cover this period in more detail later in the month, but as there have been 15 turns since 1998 (2014 was a double turn) in the 4^th week of June, it reinforces the point that June tends to be more of a trading month than a trending month.

The BREXIT driven bottom on Monday, June 27^th was one of the more significant bottoms that the 4^th week of June has seen since 1998. 

Current Conditions

On a monthly basis, the SPX is monthly OB with an MFI(14) of 75. Monthly OB is not that helpful in predicting market tops, BUT it should be noted that the last the last 3 times the SPX hit monthly OB (Aug 2014, Dec 2013 and April 2010), it experienced market weakness and pullbacks that lasted until either two months later (Oct 2014 and Feb 2014) or 3 months (July 2011)

On a weekly basis, the SPX RSI of 71 is elevated and technically divergent, but weekly divergences can last for some time.

On a daily basis, the SPX has had a very strong run since the May Opex Thursday bottom. There is not a lot else to say. There is a clear breakout above the recent range, though this is what also occurred on the first trading day of March this year.

With the extremely strong rally since Wednesday morning in the MID and the RUT both have moved from an hourly buy signal yesterday to an hourly sell signal today. I have no record of this occurring before.

BOTTOM LINE

The tight ranges and low volatility for the SPX  are historically unusual for the SPX.  As I have noted before since 1998, the SPX has regularly had corrections / pullbacks in Q2 that have lasted a number of weeks On average, these corrections have lasted 36 days and the market has corrected / pulled back 8.1%. The only recent year that did not have one was 2014 and that year there was a 6% correction in Q1.

2007 (Friday, June 1^st) and 2009 (Tuesday, June 9^th) were the two years that had corrections starting in June. The recent corrections that started in May were in 2011, 2012, 2013 & 2015)

Now that the market has made a new high in June, there are three scenarios with the associated analogs to consider:

• 2016 (May opex Thursday bottom): Market continues higher in to the 2^nd week of June and then pulls back and starts a multi week correction.
• 2014 (May opex Thursday bottom) – Market continues generally higher in June with a number of pullbacks and rallies – does not really change trend until July opex or later
• 2017 – more of the same – The market stays in a tight range with just a few sudden drops that are bought after becoming hourly oversold either on the day (like Wednesday, May 31^st) or the next day (like on Thursday, May18th)

With respect to employment, at this stage a top and pullback post employment – possibly for just a few days is the most likely scenario. Though it is possible that the small dip between May 25^th and May 31^st, which was much greater in other indices actually created a pre employment bottom like was seen in May and March. (note the April – May pullback was just slightly larger in size and duration – the market’s next pullback was then for two days from the Tuesday post employment to the Thursday)

For now, it continues to be a challenging market for those that like volatility and proper clean tops and more extending sell offs in the SPX.     For those interested in indices that are moving a bit more the MID and RUT seem to be the best places to focus. They have certainly moved a lot more in the past few weeks – both higher and lower.

Lets hope it is an interesting a month of June as it was in 2016.

-D

JUNE DETAIL and supporting evidence

June Overall:

JUNE has never been the HIGH for the year since at least 1950. June has been the low for the year just 4 times (June 62, June 65, June 06 & June 12). Recent examples:

• 2015: High for the year was in May. The high was tested post opex in June, but not exceeded
• 2014: New high for the year was made in June and the market proceeded to make higher highs later in the year
• 2012: Low for the year in June
• 2009: New highs for the year in early June – market topped on June 9^th and traded down for a month, but then saw new highs for the year in late July and onwards
• 2007 – New highs for the year in early June. Market topped on 1-June and fell till June 27^th, but subsequently rallied to new highs for the year in July and October

JUNE is a transitional month between May opex extremes and early July – even as late as July opex extremes

• Given the rarity of market extremes in the month of June, it is helpful to in many ways view June as a transitional month between May opex and early July to as late as July opex (and in the case of 2013 – August employment).
• I can not explain this late May-June-July tendency, but it exists. The best way to explain is to review how the market has traded in the last few years during this time of year:
  • 2016 – The Brexit inspired sell off and then rally made June 2016 a slightly different year as the low was in late June, not early July as normal.
  • 2015 – High for the year post May opex. Market stayed in the trading range in June with a late break in to a low in the second week of July. There was one last rally attempt during the July opex period and then the market rolled over
  • 2014 – The market surged post Memorial Day and stayed in an upward sloping trading range until topping post July opex and correcting briefly, but sharply
  • 2013 – Market topped for the year post May opex and fell in to the Major bottom post June opex before surging in to July opex and eventually August employment before rolling over
  • 2011 – Market briefly bottomed post May opex and rallied a bit before rolling over and falling sharply in to June opex. Market had one final surge in to the 2^nd week of July before really turning lower
  • 2010 – Market topped in late April – had a good bounce post May opex and an even better bounce post June employment in to June opex, but then topped and fell to the low of the year in early July.
  • 2008 – Market topped post May opex and after a brief bounce at the beginning of June, it fell relentlessly until July opex

JUNE is a month that produces quite a few significant turns. Essentially, it is more of a trader’s market than a trend follower’s market

-June is really the ultimate trader’s month – as there are almost always at least 3 solid turns, if not 4. The two recent exceptions were 2014 – that just had 2 small turns and 2013 that had 5 turns

• 2016 – 4 MAJOR turns thanks to Brexit. Topped on the Wednesday (8^th) post employment (2^nd week of June), bottomed on Opex Thursday (day after FOMC), topped at the close on Thursday, June 23^rd prior to the Brexit vote and had a MAJOR Significant bottom on Monday, June 27^th after the sharp 2 day Brexit driven sell off
• 2015 – 3 turns – Bottomed on the Tuesday post employment, rallied for 2 days and 43pts – pulled back 42pts in 2 days till opex Monday and then topped on the Monday post opex and fell 85 pts in to the 2^nd week of July
• 2014 – just 2 turns – minor top on Monday post employment (3 day 29pt pullback) and minor top on Tuesday post opex (2 day 24pt pullback)
• 2013 – 5 turns – very volatile month – Thursday before employment low, Tuesday after top, Thursday before opex low, Opex Tuesday (pre FOMC top) and a final major low on Monday post opex at 1560
• 2012: 3 turns – Major bottom on Tuesday post employment, which was the last low of the year at 1267 – strong rally to the Tuesday post opex and then a pullback till Monday, the 25^th and the rally resumed
• 2011 – 3 turns – 1^st of June MAJOR TOP and then a slide all the way till opex Thursday which was the low for the month, a minor top pre FOMC and then a low day after FOMC and a rally in to July
• 2010 4 turns – Day before employment top and Tuesday after employment low, counter trend rally all of opex until MAJOR TOP on Monday post opex (pre FOMC) and then the summer bottom on 1-July
• 2009 – 3 turns – Post employment top, post opex low and end of Month – 1^st of July high
• 2008 – 3 turns – Employment top, Thursday before opex low and opex Tuesday top then a long slide in to July
• 2007 – 4 turns – employment top, Friday before opex low, opex day top, late June low

The month of June has TWICE had big slides:  2002 & 2008   Though given how it traded, the 3 wave move from Wednesday, June 8^th to the low on Monday, June 27^th could also be counted as a third big slide

It has had steady to strong rallies – THREE times – 1998, 2012 & 2014

May Opex Review, Memorial Day Preview and Q2 Corrections – 2017 (as of early in the day on Wednesday post opex, May 24^th, 2017 )

For the third time in 4 years, the market has bottomed on May opex Thursday and rallied. The other two rallies in 2014 and 2016 did not terminate until post employment in June.

• In 2016, the market had corrected for 29 days before making the opex Thursday bottom and rallying.
• In 2014, the one year since the bull market began that the market was persistent throughout Q2, the market had a brief opex Tuesday to opex Thursday pullback and then powered to new highs. Interestingly, back in 2014, the SPY had a battle just below 1900 before it exploded higher post May opex to its next battle with resistance between 1980 and 1990

The persistent bullishness is definitely back and the rapid recovery of last Wednesday’s losses will definitely reinforce the market’s “Buy the Dip” psychology.   I can not argue against the BTD impulse as it definitely works.

With respect to this May opex period, it was and still is an unusual one, as Tuesday highs and then the sharp reaction to Thursday lows are rare – though as I noted last week, it did happen in May 2014 as well. The immediate V shaped rally without even a down day or a test of the low is more unusual for a May opex period bottom, though it is definitely a characteristic that has been seen during the V bottoms in the market’s persistently bullish periods like the market is experiencing now.

There are a few other comments about the May opex period below that may be of interest.

MEMORIAL DAY Holiday is the next Turning Point- Per my May Turning Point Preview, it used to be very good for countertrend trading turns, but it has never been the top or bottom for a move.   Holidays have still been consistent turning points, but less so during persistently bullish periods.

• For now, it is best to be aware of the tendency to turn post the Memorial Day holiday for a trading turn, but also remember that there was no turn in 2014 when the market had an opex Thursday bottom and there was only a one day pullback post the holiday in 2016.
• If the market continues to rally in to next Tuesday, it is possible that it will experience a short term 1 to 2 day pullback. I would not expect a MAJOR top.

One other point to note that is relevant to next week is that the market’s trend direction from this current week in May tends to persist until at least the 2^nd week of June. It is not always the case, but the primary exceptions were really only in 2010, 2011 and 2012 when the market was bearishly inclined and made post opex bottoms, post Memorial Day tops and then fell in to June. (more info below)

The LAST point and the one that the more bearishly inclined will be happy to read about is that UNLESS the SPX is repeating Q2 2014 (which is possible, though it has yet to even have the 4% plus correction that occurred in April 2014, then some time in the next few weeks, the market should have a more significant top and a 4% plus pullback that should last a few weeks. (see below for more details)

• It is also important to note that the market’s Q2 top occurred on the Wednesday post opex in both 2013 and 2015.

Current Conditions:

The short term market conditions are reasonably neutral. The market has had four consecutive days of gains as it has recovered from Wednesday’s sharp move lower. The market had a similar recovery in late March after the sharp fall on March 21^st, though it took slightly longer for the market to recover. The market then stalled before making a slightly higher high and then it re-tested the low:

• On a daily basis: The SPX is neutral with a daily RSI (9) of 59. It should be noted that last week the IWM and MDY were daily MFI OS, but are no longer given the bounce.
• On a weekly basis: The SPX is slightly extended with an RSI(9) of 68, but more interestingly, it has not touched its 20 week MA since November. This is now the longest period since the bull market began in 2009 that the SPX has not touched its 20 week MA now residing at 2350. The previous longest period was Nov 2012 to May 2013. The SPX then corrected 7.9% in 33 days
• On a monthly basis, the market is OB with an RSI (9) of 77 and an MFI 14 of 74. Monthly strength can last for many months, so this is not a topping indicator

Bottom Line

What I wrote last Tuesday (while quite accurate – though not really prophetic) still applies:

• “Overall, I dislike constantly cautioning about potential tops. We are back to being in a persistently bullish period. With the super tight ranges, the bulls are in control and there is really no edge from the perspective of my work, so I am going to remain fairly quite in my commentary…..”
• Of course, the market then dropped sharply…. And bottomed almost as quickly.

There really are two opposing points here:

• The consistency of the Q2 tops and pullbacks is something that has occurred in almost every year since 1998 with 2014 really being the only exception and in 2014 there was a 6% pullback in January and a sharp 4.4% pullback in April. Also, the length of time since the SPX touched its 20 week MA supports a correction.
• If a TOP did not occur last Tuesday (and this rally is just a re-test) or does not occur very soon, then it is likely that the market will rally in to June and probably top post June employment.
• 2014 is the one analog that supports a continued rally in to Q3 and then would suggest that Q3 and early Q4 would be a more difficult period for the market.   The SPX has had a real battle with 2400 just like it did in 2014 with 1900.

I wish I could point to a real historical edge right now, but there simply is not one.   The bulls definitely have the support of the market’s persistent bullishness, while the bears do have the historical tendency for the market to correct in Q2 and the extended period that the SPX has not touched its 20 week MA.

Sadly, for now, I am once again decidedly neutral.

ENJOY the holiday weekend!

-D

MEMORIAL DAY Holiday

The Memorial Day holiday used to be very good for countertrend trading turns. The holiday turn was never THE top or THE bottom of a move, but the turn generally represented a good trading 2 to 7 day trading opportunity. Alas, that has not been the case lately

• 2016 There was a minor one day 18pt SPX pullback post the holiday after the super strong rally out of the May opex bottom
• 2015: the market had a minor bottom. There was a Sharp sell off on the day after – the market got got very hourly oversold (14 RSI on SPY) and bounced 28pts – but just for a day (this was after the post opex MAJOR TOP)

• 2014: There was no turn.
• Between 2008 and 2013: there was a turn after the holiday in every year.

Holidays in General

Market has continued to turn, when expected. The only slight twist is that it used to be the market turned post holiday, but in the last year, the turns have been more balanced before and after.

• Good Friday: There was a MAJOR Bottom before Good Friday in April 2017
• President’s Day: Somewhat surprisingly the rally continued post opex and post President’s Day in February
• MLK 2017: There was a minor 6 day top that started the Friday before MLK in January
• New Year’s: There was a MAJOR bottom on the day before the New Year’s holiday
• Christmas: There was a minor top 1 day after Christmas
• Thanksgiving: There was a minor top 1 day after Thanksgiving

LATE MAY in to June Direction

One interesting point to remember is that the market move from mid to late May tends to persist in to at least the 2^nd week of June. This is not always the case, but it is frequent enough to be notable.

• Rallies in to June – 8 times     (2016: May 19^th to June 8^th and 2014: May 15^th to June 9^th are recent examples)
• Falls in to June – 5 times   (2015: May 20^th to June 9^th and 2013: May 22^nd to June 6^th are recent examples)
• Rallies till post Memorial Day and then falls in to June – 3 times   (2012, 2011 and 2010)
• Two exceptions – 2007 was a rally till June 1^st and then a correction and 1998 was just a messy trading range

MAY Opex Week Review

Tuesday tops and Thursday bottoms:

A Tuesday high for opex week does not occur that often. In most instances a Tuesday high is during bearish market periods. December 2016 with a Tuesday high and Wednesday low and May 2014 – a bullish period, also with a Thursday bottom are the most recent exceptions.

• Overall, Tuesday has only been the high for opex week 35 times since 1998. (15% of the time)
• When the market makes a Tuesday high then opex Friday is by far the most likely day for an opex week low (21 times) followed by Thursday
• Interestingly, when the opex period has been a bottom – 4 times (May 2014, June 2011, Jan 2011 and Dec 2011) the Thursday has marked the bottom and 4 times, there has been a post opex bottom.
• The weekly range of 52 pts was the widest the SPX has seen since Feb 2016.
• Prior to this past opex week, this 50plus point weekly range indicated there would be a bottom post opex.
• Lastly, there is ONE instance where the market had a Tuesday high and a Thursday low and then a MAJOR post opex top – this occurred in August 1999 when the market had a small Tuesday to Thursday pullback and then powered higher in to a Wednesday post opex top that ended up lasting for two plus months. This is an outlier, but something to remember.

While I did not expect the strength or speed of the recovery from last Thursday’s lows, I also did not quite expect the market to make a MAJOR Top last Tuesday given that it so rarely happens early in opex week and almost always happens during bear markets. Here is the data on MAJOR Opex Tops:

There have been 58 MAJOR Opex Tops since 1998 out of 233 opex weeks (about 25%). A MAJOR top is defined as a top and a correction of at least 50pts from Opex Monday to the Wednesday post opex.

Here is when the MAJOR Tops have occurred:

• Opex Monday 4 times   (Most recently Aug 2008)
• Opex Tuesday 4 times   (Most recently Oct 2008)
• Opex Wednesday 10 times (Most recently March 2017)
• Opex Thursday 6 times   (Most recently Sept 2015)
• Opex Friday   7 times (Most recently Sept 2014)
• Monday Post Opex:   11 times (Most recently Oct 2016)
• Tuesday Post Opex 7 times (most recently Jan 2014)
• Wednesday Post Opex 9 times (Most recently Apr 2016)

Q2 CORRECTIONS with Clear Q2 tops and pullbacks

Since 1998, the SPX has regularly had corrections / pullbacks in Q2 that have lasted a number of weeks On average, these corrections have lasted 36 days and the market has corrected / pulled back 8.1%. The only recent year that did not have one was 2014 and that year there was a 6% correction in Q1.

In terms of duration:

• The longest correction occurred in 2010 when the SPX corrected 17.1% in 66 days from April 26^th to July 1st
• The shortest correction was at the start of the 2003 bull market when the SPX corrected 5.2% from June 17^th to July 1st – just 14 days.
• There was also a 14 day 7.2% correction in 1999.
• In 2016, the correction lasted 29 days from April 20^th post April opex to May 19^th – opex Thursday. The correction was only 4%

In terms of the size of the pullbacks

• The largest was the 17.1% correction in 2010
• The smallest was the 4.0% correction in 2016 followed closely by the 4.3% correction in 2015

In terms of the start date for these corrections:

• Before 15-April:     ONE         2004
• Between 15-April and 30-April:   THREE     1998, 2010 & 2016
• Between May 1^st and May 15th :       FOUR    1999, 2006, 2011, 2012
• Between May 15^th and May 31st   :   FOUR               2001, 2008, 2013 and 2015 (All post May opex)
• June –   THREE     2003 (17^th) and 2007 (1^st) and 2009 (9^th)

There have been 4 years without noticeable Q2 tops that then had noticeable corrections:

• 2014 – market had a sharp 7 day 4.4% correction during the 2^nd week of April, but then did not start another noticeable correction until late July
• 2005 – SPX corrected 7.6% from March 7^th to April 20^th
• 2002 – Correction was much longer and more extensive with a top on March 19^th and bottom after a 33.9% drop on July 24th
• 2000 Market experience a MAJOR BOTTOM in April. The correction was from March 24th to Apr 14th (9.4%) – the market then stayed volatile within that range

May 2017 Turning Points – The month of May and post FOMC and pre Employment (as of mid morning on Thursday, May 4^th, 2017)

The following is my monthly turning point preview. It touches on important and interesting historical information about the upcoming month.   I have been waiting patiently for the market to reveal some interesting edge, but it is just not helping out right now. (sorry about that) So here is FINALLY the May preview!

May Perspective

The character of the month of May has changed over the years – really since 2006 – though 2007 (straight up all month) was a bit of an outlier. There really have been two distinct types of May since 2007:

• Trading Range – upward or downward sloped (6 out of 9 years) headed in one general direction with distinct highs and lows that did not resolve till post opex
• Trend move till opex or later (3 years)

Also, quite frequently one of the extremes (high or low) for the month occurs during the first four trading days of the month

• It happened every year from 2009 to 2013
• Lately there has just been a short term extreme established: in 2014 – minor high on 2^nd trading day, 2015 – low for the month on the 4^th trading day & 2016 – low on the 5^th trading day)
• ALSO, late in opex / post opex has been extremely important for turns. (See research below)

From a swing trader’s perspective, SELL in MAY has no historical justification or relevance, BUT

• There are always a few articles about it. The key thing to remember with respect to sell in May , is that the period from late May to early June has been an important time for major tops (50 plus SPX pts) every year since 2007 EXCEPT for 2014, BUT 2011 and 2015 are the only years since 1987 that the high for the year occurred in May. Otherwise, there have just been Q2 sell offs (except for 2014) that ended in June or early July.
• 2016 was a great example of this trend. GREAT Opex Thursday buying opportunity and then a top on Wednesday, June 9^th that eventually produced a 130pt sell off (thanks to Brexit) and a late June bottom.

FOMC and Employment in Same Week

The early May price action is key given the tendency to turn in early May or have the extreme for the month

• There has NOT BEEN A MAJOR TURN on every combination of FOMC and employment, but there certainly have been a lot.
• The FOMC meeting before the employment report combination has occurred 13 times since 2007. This is the third time in the last 6 months and before that there were no instances until back in the summer of 2014.
• Declines in to and possibly through the FOMC meeting have set up some very good buying opportunities lately. In fact, the last four instances have all been buying opportunities – 2 on employment day (Aug 14 and Nov 16) and two before the FOMC (May 14 – Monday and Jan 17 – Tuesday)

GIVEN Wednesday’s muted price action – there is NO NEW Information that can be gleaned from the Fed day price action

Employment

The early May price action is key given the tendency to turn in early May or have the extreme for the month in the first four trading days of May. There are almost always May employment turns, but quite frequently they are just countertrend minor turns lasting a few days to a week (2009).

• There has only been one year since 2007 where the market fell through the employment report in to the following week that was in 2012 when the market topped on the 1^st trading day of the month and trended lower all month until the opex day bottom.
• In May 2016, after topping on the first trading day of May, the market gapped down and bottomed on employment day and then rallied for 47pts in 5 days before heading lower in to the May opex bottom

The price action post Fed day is probably the key for what might happen with the employment turn.

• If the market heads LOWED post FOMC, then a bottom on the day before employment or employment day is likely given that the market has only once fallen through the employment report during the month of MAY
• If the market heads higher then a rally in next week is likely, then the market tends to have a period of weakness before opex week – (see below in the May opex comment)

May Opex

• The May opex period is one of the most consistent ones for turns.
• It can be a bottom or top – it all depends on the trend during opex week – the May opex period is definitely one for trending until late in the opex period (though May 2014 was an exception).
• Opex Thursday or the Monday to Wednesday after always seem to be the turning points   (The lows in BOTH 2014 and 2016 were on Opex Thursday)
• Except for 2004, 2011 and 2014 and 2016 – the market does seem to trend a fair amount with Friday being either high or low for the week every other year since 2002 (Monday was the other extreme in 9 of those 14 years). Since 1998, opex week has trended up 8 times, trended down 6 times and chopped around a bit 3 times (2014 most recently)

One other odd feature of May opex week as there is almost always a pullback the week before May opex week (generally the case) or a pullback in to May opex week. 2013 was the one real exception when the market was just relentlessly higher.

• In 2016, the market started pulling back from Wednesday, May 11^th until bottoming on Opex, Thursday, the 18^th
• In 2015, the market bottomed on the Wednesday before opex (and employment) and rallied strongly in to opex week. It experienced a pullback on the Monday and Tuesday and then ramped higher in to the post opex top

Memorial Day Holiday

The Memorial Day holiday used to be very good for countertrend trading turns. The holiday turn was never THE top or THE bottom of a move, but the turn generally represented a good trading 2 to 7 day trading opportunity. Alas, that has not been the case lately

• 2016 There was a minor one day pullback post the holiday after the super strong rally out of the May opex bottom
• 2015: the market had a minor bottom. There was a Sharp sell off on the day after – the market got got very hourly oversold (14 RSI on SPY) and bounced 28pts – but just for a day (this was after the post opex MAJOR TOP

• There was no turn in 2014, but otherwise there has been a turn after the holiday in every year between 2008 and 2015.For now, the Memorial Day edge seems to be hibernating

Other Observations:

• The Long period without a MID 10 minute buy signal study was triggered again last week after 15 days without a buy signal. I posted this study in April 2016. The study indicates that there is a higher than average probability (12 of 18 instances) of the market having a MAJOR top (and a 50pt plus SPX pullback) shortly before or after this study is triggered. It was accurate in April 2016 and again in June 2016, but it just indicated brief weakness in late November 2016 and mid July 2016
• MDY Daily MFI OB – MDY ended a daily MFI OB period last Friday – April 28^th – From the Daily OB exit day to the next low is on average 8 days, but there is a wide variability as to what happens. The last OB period was in late November 16 and the weakness was brief.
• MDY Weekly MFI OB – MDY has been Weekly OB since the last week in March. This is starting to be an extended period. There have been 30 weekly OB periods since 1998. On average, they last 2 to 5 weeks. While the last two weekly OB signals did signal MAJOR tops and significant pullbacks, this indicator only is helpful in identifying major tops around 40% of the time
• MDY and IWM Monthly MFI OB – The last time this occurred was in spring 2014 and Spring 2004 for both of them and also April 2010 for MDY – Interestingly, these rare instances did indicate a stall and a few months of consolidation / pullback with a pullback to the 20 month MA occurring in 2014 and near the 20 month MA in 2004. Again, not a sell signal – just something for awareness.
• SPX Inside Month – SPX had its first inside month since September 2015 in April. There have been 8 other inside months since March 2009, but I could find nothing that was particularly helpful with this somewhat interesting technical fact.

 Current Conditions   (pre employment from 10:30am on Thursday, May 4^th)

There are lots of extended indicators, but NONE that are helpful in predicting a top or the market’s next direction

• SPY Monthly RSI is 78
• SPY Weekly RSI is 68
• SPY Daily RSI is 65
• SPY is not MFI OB on any timeframe

The daily RSI of 65 is fairly high – but not particularly helpful In December, the daily RSI was 66 and the market bottomed on the day before employment and rallied. In June 2016 (69 RSI), the market continued to rally for 5 more days before topping out on the Wednesday post employment.

NOTE: The inside week for opex week did break up. That study indicated that the play was always to FADE the range break post opex. That study has actually been reasonably accurate for the MID and the RUT, but the SPX has not validated it and the study is based on the SPX.

Bottom Line:

Just as I wrote last year – the month of May is generally a very good one for traders, as there is usually good two way price action in the first half of the month before a stronger trend generally takes over during opex week until the late in the opex period turn. Right now, the MID & RUT seem to be showing the best 2 way price action since late March.

• The lack of an April opex buying opportunity does mean that we are dealing with a slightly different than normal April – May period. This same message is underlined by the different technical configurations of the three index grouping – SPX, NDX & MID/RUT.
• The MID and RUT, especially the RUT, tend to be weak until the middle of the month on a relative basis (who knows why…)
• Right now, for the employment report, just like the FOMC announcement, there is absolutely NO EDGE with the SPX stuck in this VERY narrow range between 2380 and 2398.

The key thing to remember about the month of May is that the best and strongest trend opportunities for the month of May tend to emerge some time after the Thursday of opex week, so it is best to not get too wedded to one side of the market or the other.

Have a good month!

-D

DETAIL NOTES

Opex or Post opex is a really important time for the SPX to begin a move in to early June. It does not always happen, but it is a fairly strong edge. As examples:

• 2016 Bottomed on Opex Thurs, May 19th and rallied to June 8^th
• 2015 Topped (for the year!) on Wed, May 20^th (post opex) and initially fell to June 9^th
• 2014 Bottomed on Opex Thurs, May 15^th and initially rallied to June 9^th
• 2013: Topped on Wed, May 22nd (post opex) and fell initially to June 6thOverall since 1998, there have been
• 8 rallies – 6 which started late in opex or post opex
• 5 falls – 4 of which start on Opex day or opex opex
• 3 rallies from Opex / post opex that ended post Memorial Day
• 1 Fall from post opex to post Memorial Day
• 2 where there was no real distinct trend change

BEGINNING of May

NOTE (from May 3^rd): This has already been published and it is just a follow up. The rally from Friday, April 28^th in to Monday, May 1^st did occur, but at approximately 12pts, it was pretty minimal and there is NOTHING right now that can be gleaned from such minimal price action.

 I have referenced the rally from late April in to early May a few times this month. It is possible that today’s weakness is mirroring the end of February, when the market was weak on the last day of the month and soared on March 1^st (though I do not believe Trump is speaking), but right now it seems less likely.   Here are a few thoughts on it and the supporting data,

Given that April 2016 & 2017 were slightly different months with NO opex buying opportunity (both bottomed for the month on the Thursday before opex week started), May 2017 may prove to have a different than normal character (or it could be similar to May 2016), but one should be aware of two things that are fairly consistent with the month of May:

1. The Late in April buying opportunity for a rally in to May has occurred in 16 of the last 19 years. The other 3 years (2007, 2008 & 2013), the buying opportunity occurred on May 1^st – good for at least a bounce. Though in the case of 2013, it was the start of a VERY strong rally in to the post opex MAJOR TOP. 2007’s low on the 1^st also produced a strong rally.
   • The late April to early May rally has on average lasted 7 days with a minimum of 3 calendar days.
   • The shortest was in 2010 – Friday, April 30^th near the close to Monday, May 3^rd. The Monday was an inside day and the rally was 19pts.
   • In 2015, the rally was from late on Thursday, April 30^th to Monday, May 4^th and was good for 44pts.
   • In 2016, the rally was from Friday, April 29^th to just Monday, May 2^nd – but it was 32pts – it should be noted that the rally was just an approximate 50% retrace from the Wed post opex top to the lows on Friday, April 29^th
2. Given the late April in to May rally, it is important to also know that in the last 19 years, there has been a short term inflection point in the first four trading days of the month 17 times (89%)
   • 9 times on the 1^st day (47%)
   • 6 times on the 2^nd day (32%)
   • 2 times on the 4^th day (11%) – 2010 had the FLASH CRASH
   • 12 times it was a top, 5 times it was a bottom

Essentially, if there is a rally on Monday, it may only last one to 4 days in to May. If the market makes new lows on Monday, 4 times the local low has been on the 1^st trading day. The only exception was an EXTREME ONE, the Flash Crash in May 2010 on the 4^th day. (but note the cautionary comment below)

THERE are some challenges for next week too – with the FOMC on Wednesday and the employment report on Friday.

and some CAUTION SIGNS for the early MAY Rally

This last week of April with the HUGE Monday gap up and the run higher till Wednesday with two days spent entirely above the upper bollo for the SPX is unusual. It actually does not bode that well for May (see below) Given the very small pullback from the upper bollo, there is not much insight in to whether the rally in to early May will occur. Other than 2003, the other years all showed:

• Weakness to the lower daily bollo (2016)
• Small gains until the employment report or the day before and then down (2006 & 2009) in to at least opex week
• An early peak and down till post opex (2011 & 2012)
• A short pullback of a few days and 25 to 50SPX pts before resuming rally (2003 & 2008) – but this was after the MAJOR March bottom and the end of the bear market

Bottom Line:

The strength of the late April / post opex rally is unusual- having only occurred 6 times in the last 19 years. It may mean a muted start to May (2006 & 2009) and then a decline or more substantial decline (2011, 2012 & 2016).

• While the early May rally may still materialize next week, there has not been that much weakness yet to make it highly probable.
• On the flipside, if there is weakness in to the first few days of next week, it is possible that a buying opportunity will materialize before either Wednesday’s FOMC meeting or Friday’s employment report.

DETAILS

What happened when the SPX traded above the upper bollo during the last week of April?

• 2011 – Bottomed on the Monday post opex and ran strongly higher with an upper bollo run for the last 4 days of April. Topped at open on Monday, May 1^st on Osama Bin Laden news and fell all month until post May opex
• 2009 – Bottomed on the Tuesday post opex and briefly pulled back from above the upper bollo on Thursday, April 30^th, but resumed rallying on Friday, May 1^st after making a slightly lower low – rally continued until Thursday, May 7^th with multiple days above the upper bollo band – Market then fell till Opex Day, Friday, May 15^th

What happened when the SPX traded above the upper bollo post Opex Week?

• 2016 – Bounce on 1^st trading day of May and then down till employment day to just below the April opex week low and 6pts below the lower bollo band
• 2006 –After strong rally from April opex Monday bottom, market traded above upper bollo band post opex and then declined to the 40 day MA (note 20 and 40 day MAs were only 4pts apart) and then reversed higher to make a slightly higher high above the upper bollo on Friday, May 5^th – this was the top for May and the market declined till post May opex
• 2003 – From very strong rally from the March lows, the market peaked on the Wednesday post opex and declined approximately 2.5% in 2 days and then proceeded to rally steadily just under the upper bollo until topping on Opex Friday in May and falling sharply for a few days

What happened when the SPX traded above the upper bollo in the first week of May?

• 2012 – Rallied from Monday post opex bottom to Tuesday, May 1^st topped and decline until post May opex, bounced and then fell in to early June low
• 2009 – Bottomed on the Tuesday post opex and briefly pulled back from above the upper bollo on Thursday, April 30^th, but resumed rallying on Friday, May 1^st after making a slightly lower low – rally continued until Thursday, May 7^th with multiple days above the upper bollo band – Market then fell till Opex Day, Friday, May 15^th
• 2008 – Briefly traded above upper bollo band on Friday, May 2^nd then declined to 20 day MA on opex Monday before rallying again until MAJOR TOPPING on the Monday post May opex.
• 2006 –After strong rally from April opex Monday bottom, market traded above upper bollo band post opex and then declined to the 40 day MA (note 20 and 40 day MAs were only 4pts apart) and then reversed higher to make a slightly higher high above the upper bollo on Friday, May 5^th – this was the top for May and the market declined till post May opex

Post April Opex Comments (as of late morning on Wednesday 26-Apr-17 – post opex):

As I can not remember an opex period that has EVER triggered so many of my opex studies, I thought it would be helpful for me and interesting (possibly for you) to just review all of the historical studies to see if they may provide any helpful indications and answer the question:

Will this be an Opex Rally continuation or a minor or MAJOR post opex top?

For definition purposes, the opex period runs from Opex Monday to the Wednesday post opex (or in the case of November, post the holiday as well).

• Opex turns are identified as clear bottoms or tops with a minimum multi day move of 25 SPX pts.
• The SPX / SPY is the only index that is used

For now, unless the market moves to the downside fairly soon, a rally continuation does appear likely – which would be somewhat surprising given the studies I will cover below – but not totally surprising as the persistence of the market has once again made “rally continuations” much more frequent. (recent rally continuations: Feb 17, Nov 16, July 16, Oct 15 – most rally continuations are due to the market getting quite oversold the previous month or earlier that month – but Feb 17 was a clear continuation due simply to the range breakout)

I will admit I would not have predicted a rally continuation for the market based on the fact that the market simply did not get that oversold for the pre holiday bottom on Thursday, April 13^th.

Rally continuations, if they occur tend to see the market trend higher in to early the next month if not longer.

(nb: Falls in to opex never seem to continue – as there always seems to be at least one sharp oversold rally during every opex period – though June 2008 was almost a fall continuation)

Here is a list of the studies that have been triggered by this opex period and what they should have meant.

RALLY from below lower bollo to above upper bollo during opex period

• Has only occurred once before since 2007. It was in Dec 2013 when there was a spike below a flat lower bollo on opex Wednesday (Fed day) and then a strong rally that went on till the end of the year
• Inconclusive

SPX Trading below lower bollo on last trading day before opex week starts

• This study has actually been seen quite a few times in recent years (Sep 16, Jan 16 & Dec 15) and each time, the market fell in to opex week and then produced good rallies – though only 2 out of the 8 instances saw rallies that were super long lasting.
• The only time the SPX did not make a lower low during opex week was April 2014. The market did have a minor top on the Tuesda post opex that retraced 50% of the rally
• Conclusion: April 2014 is the only analog – really unusual that the market did not make a lower low, but that is why historical studies are just that historical studies that provide perspective on what could happen – not what WILL happen.

HOURLY MID Buy signal on the last day of the week before opex week

• The only time prior to April 2017 that the hourly buy signal before opex worked was October 2012. The market MAJOR topped on Opex Thursday and declined for another month
• Conclusion:   There is now a second exception and this one produced an EXTREMELY strong rally

Inside week for Opex Week –

• When the SPX trades completely within the previous week’s range during opex week the 7 previous instances.
• The most recent instance was October 16 that saw a Monday post opex Gap Up that failed and the market reverse in to November employment
• April 2012 ( a Monday post opex buy) and April 2014 (a minor Tuesday post opex / post holiday top) were the two previous April instances
• The range breaks were between 1.5pts (Jan 17) and 20pts (Feb 2008)
• This current range break is 26pts as measured from the April 10^th high of 2366
• Conclusion – this study is not time based, so the market can still reverse for a pullback of some sort back in to the range. The pullback in April 2014 was 50% of the rally

Trend days up for the MID on Opex Thursday

• There have been 14 in the last 8 years. 9 made post opex tops – though the one in Sept 16 did not occur until the Thursday post opex (it was a MAJOR Bottom on Opex Monday)
• The only relevant one that did not make a post opex top was in August 2014 that had a very strong sell off on opex Friday to below Thursday’s low that then rebounded and the market went higher. Interestingly, the market had started rallying from the Thursday before opex week – just like this market

Many Hourly Sell signals in the MID during the opex period

• There have so far been 4 hourly sell signals in the MID for this opex period. This is a large number. I believe there have only been two other instances with so many signals – May 2013 (Major Wednesday post opex top based on Bernanke speech) and Dec 2014 (mentioned before with an opex Wednesday spike down and sharp rally)

SPX above the upper bollo for some portion of the opex period

• I have not mentioned this study before as it just triggered on Monday.
• Given the bull market, there have been a large number of instances. – 39 since 2007
• 17 times the SPX produced minor tops and pullbacks – more recently this has been what has primarily occurred with the SPX (recent instances Jan 2017, Dec 2016, August 2016)
• 17 times the SPX had more long lasting MAJOR tops (last instances:   April 2016 and June 2015)
• 5 times the market kept moving higher (recent instances: Feb 2017 and July 2016)

OPEX Monday Gap up and Gap not closed

• 18 times since 1998 the market has not traded at or below the previous week’s closing SPY price.
• This has happened a lot more in recent years (Feb 17 & July 16 – rally continuations, Feb 16, July 15 and Mar 15 – Monday post opex tops and 50 plus pt brief pullbacks)
• Out of the 18 instances, there have been 12 tops (6 Major and 6 minor), 6 rally continuations

Overall, the market has been impressive since April 13^th (particularly the MID and RUT) I will admit to disappointment that it did not provide the strong opex buy set up that I was expecting given the April 13^th studies that were triggered.

April opex has only produced one previous rally continuation that was in April 2007 (after major OS bottom in March opex) and the rally continued for some time after April opex.   The bias for April is definitely from the long side and the April opex period has frequently produced good buying opportunities – though not this year.

The historical studies suggesting a post opex top are just that historical studies. The market has been range bound for some time and if the range breakout is real, then like in Feb 2017, Nov 2016 or July 2016, the market could stay persistent and run for some time. Though there are a few things to also remember:

• ECB is on Thursday and has been an occasional catalyst for turns
• There is a strong tendency for the market to rally in to early May (at least from the end of April in to early May), but it can just be a short rally.
• The market did make significant tops on the first trading day of May in 2011 and 2012

BOTTOM LINE:

The turning points and historical studies have frequently been effective guides to the market price action, but they do not always work and when this bull market gets persistent as it has during a number of periods since 2009, particularly in the last year (end of May to June 2016, July – Aug 2016, Nov – Dec 2016 and Feb to March 1^st, 2017), they definitely do not work for a number of weeks or even a month or more.

I have no idea whether this rally will end shortly or continue in to May. There are lots of signs that historically would suggest it should stop and have at least an approximately 50% pullback towards the SPX 2329 April 13^th low, but that definitely does not need to occur.

Ultimately, as always risk management of one’s positions is the most important thing.

Somewhat surprising, but as always ever interesting,

-D

GOOD Friday Holiday preview and pre opex observations April 2017 (as of 11am on Wednesday, April 12^th, 2017):

The markets are closed this Friday for the Good Friday holiday (but government offices are open, so the retails sales and CPI reports will be released on Friday) There are a number of things to remember about Good Friday:

• The date moves around a lot, so there is no consistent alignment with the turning points
• Europe is closed on both Good Friday and the Monday after – this has meant that the Tuesday post holiday is quite often a key day (in 2012 and 2014 the turn was on the Tuesday after)
• Good Friday has not occurred on the Friday before opex week since 2009.
• Overall, Good Friday is not the best holiday for turns, but in recent years it is showing much better turn tendencies

Good Friday Holiday recently

The Good Friday holiday has been a good turning point in recent years – mostly minor turns – though the last two years has seen more significant bottoms before the holiday. There were no turns for Good Friday in 2011, 2007 and 2003 – all of those years the market continued to rally through the holiday for a period of time.

Turns really have occurred either side of the holiday. There is no consistency to determining when the turn might occur.

• 2016 (post March opex) – MAJOR Bottom on the Thursday before and a sharp 8 day 54pt rally
• 2015 – (employment day in April) MAJOR Bottom on the Wednesday before (but some crazy holiday dynamics as the employment report was released on the holiday) The Wednesday low was the low for April.
• 2014 – (Opex Day) – Minor top on the Tuesday post opex and a 6 day 34 pt rally to the Monday before the April FOMC.
• 2013 – (Quarter End Friday) – Minor topped on Tuesday post the holiday and fell 34pts until bottoming at the open on the employment report
• 2012 (Employment report) Market topped for the month on Monday, April 2^nd and the market fell through Good Friday and the employment report and bottomed on the Tuesday post employment. The bounce lasted (initially) just 2 days and 31pts. A slightly higher high was then made on opex Tuesday and then there was a more lasting low on the Monday post opex.
• 2011 (No turning points) NO TURN – Market had bottomed on the Monday post opex and ran higher until topping for the year on the first trading day of May

GOOD Friday Holiday before opex week

It does not occur that often – the last time was in 2009. There have been turns around the holiday in each instance – BUT, there is NO discernible pattern

• 10-Apr-2009: Minor topped on opex Monday (post holiday) near the close at the upper bollo band and pulled back 30pts to opex Wednesday’s open
• 14-Apr-2006: Had been pulling back since April 7^th (employment day) and bottomed on Opex Monday (post holiday) just below the lower bollo band. This was the low for April
• 9-Apr-2004: Topped at the open on the Thursday before the holiday. This was the high for the month. Monday before the holiday was an inside day and at Tuesday’s open the high was re-tested, but failed. Total pullback was 30pts
• 13-Apr-2001: Market had made an oversold bottom on Wed, April 3^rd and rallied sharply till opex Wednesday (post holiday) and topped and pulled back 50pts. (The initial rally from April 3^rd was 167pts)
• 10-Apr-1998: Market had a sharp pullback from Monday, April 6^th (post employment) above the upper bollo to the 20 day MA on Wed, April 8^th pre holiday. The Thursday before holiday was an inside day. On the Monday post holiday, the low was tested and held and the market rallied till post opex week.

Markets the week before opex week

The market consistently likes to rally in to opex week. It is amazing how often it occurs:

• Last time market fell in to opex week was September 2016 (from Wednesday before to opex Monday)
• Overall in 2016, the market rallied in to opex week 8 times and fell in to it 4 times (Sep 16, Jun 16 –Wednesday before, May 16 – Tuesday before, Jan 16 – Wednesday week before)

April opex week is not as consistent with the rallies in to opex week – BUT, if the market falls in to opex week then a MAJOR opex week bottom is reasonably certain.

• 2016 – Up in to opex week and MAJOR top on Wednesday post opex
• 2015 – Up in to opex week. Topped for the week on Opex Wednesday and fell in to a MAJOR bottom on Opex Friday
• 2014 – Up in to opex week from the Friday before. Minor topped on the Tuesday post opex
• 2013 – Down in to opex week from the Thursday before opex and MAJOR Bottomed on Opex Thursday
• 2012 – Down in to opex week from the Thursday before. MAJOR Bottomed on the Monday post Opex
• 2011 – Down in to opex week from the Wednesday before. MAJOR Bottomed on the Monday post Opex
• 2010 – Up in to opex week from weeks before. Topped on opex Thursday and bottomed on the Monday post opex
• 2009 Up in to opex week from the Wednesday week before. Topped on Opex Friday and MAJOR Bottomed on the Tuesday post opex (below the opex week low)
• 2008 – Down in to opex week from the Monday before and MAJOR Bottomed on Opex Tuesday

Overall, April opex is one of the better opex weeks for producing a good buying opportunity

Follow up on April Observations

This month of April is following the general tendencies for April, but like in March, there have been some strange and somewhat unexpected twists like the strong RUT outperformance this past Tuesday. The turns are occurring, but not quite when history might predict.

• April employment has produced two potential turns – both a high on the Wednesday before (2378) and a low on the Tuesday after (2337) – from here there is no edge. The primary turn could either be a bottom or a top from here (sorry about that)
• The fall from last Wednesday to yesterday, Tuesday, was 6 days. That counts for the April tendency as unwinding the late March strength for a period of 5 to 14 days. The market can still go lower – but that April tendency has been satisfied
• REMEMBER – April tends to have quite a few turns, so there can definitely be more ahead
• April opex is generally a volatile week with lots of double turns! In the 8 years from 2009, there have been 6 double turns. (tops and bottoms during the opex period)

Current Conditions                       (as of 11am on Wednesday, April 12^th, 2017)

The market continues to be in a real range. The technical conditions are neutral.   The swings and volatility are definitely picking up within the range.

Both hourly signals and 10 minute signals have been working – though patience has been needed for the 10 minute signals. (as an example – 10 periods were needed for the bottom on the 6^th, 8 periods were needed for the bottom on the 11^th and 6 periods were needed for the top on April 5^th)

Bottom Line:

Opportunities on both the long and short side keep appearing.

• The turns do keep occurring
• Good Friday has decent turn potential – especially if the market keeps moving in one direction till the Tuesday post holiday.
• April opex week is very good for double turns
• A fall to new lows during April opex week would set up well for an opex inspired rallyThe challenge right now is the market is in a range. I think most everyone is hoping (or expecting) that the range will break soon, either higher or lower. The issue is that the market never likes to do what everyone is hoping for.I am neutral and planning on continuing to play the market when it gets too OB or too OS – that seems to be the only thing that works.

ENJOY the long weekend! – we are off for 4 days here and the kids are now on holiday till May 2^nd (yikes!)

-D

April 2017 Turning Point Preview (as of close of business on Tuesday, April 4th ):

The following is my monthly turning point preview. It touches on important and interesting historical information about the upcoming month. Most of the data is from recent history through to 1998.

 In my view the market has now normalized (even if the range is still narrow and volatility is low). In fact, it normalized back about March 9^th when it made its somewhat expected low for the rally in to March opex week. The month of March really had three things that were fairly normal for March, but also three things that were not that normal:

The rally in to opex with a low prior to a late employment report was expected. As always, it is the timing and levels that are the challenge.

• The March 1^st top – which still has not been exceeded – was not normal. There have been some early March tops, but nothing quite like that one in the SPX on March 1^st. The one recent early March top that I am reminded of is the one in the RUT in 2014. That high was also tested in opex and then the RUT ended up declining till mid May.
• Overall, one must go back to 2005 to see an early March top like the one the market just had. (Market declined until April opex)

The rally and the top post FOMC was what history would have predicted

• BUT it is rare for the SPX to top on opex Wednesday during the Quad opex week. The top did occur post FOMC as expected… but opex Wednesday was early.

A rally during the end of March was also fairly standard

• But it did not start on the Thursday post opex as had happened the last few years, but instead on Monday, the 27^th and only last till March 30^th instead of in to April.

Overall, the price action with the one March exception of the March 1^st high can be considered fairly in line with history. What is unusual for April so far is the failure to rally in to April. The normal price action with a late March pullback and rally is for the market to at least continue with the rally in to early April. Today is only the second trading day of April, but it is still unusual for the market to not trade above the late March high. Normally the rallies from the March pullback end somewhere between the 1^st (last seen in 2016) and the 7^th (2008) or just for strength to just continue (2010 and 2007)

APRIL Perspective

Last year, I wrote – “Overall, April is a month that at the very least ends strong….” Alas, in 2016, the market topped on the Wednesday post opex and fell till May opex week.

What are some of the other April characteristics?

• April tends to have quite a few turns – almost every week – with just 2007 being a super strong upward trending month. (Even in 2010 there were regular turns – they just did not start until the 15^th of the month) April 2016 saw quite a few good turns with just the one trending move from April 7^th to April 20th
• April employment always produces turns (11 tops and 6 bottoms since 1998)
• April opex is very good for turns and with the exception of 2014 and 2016, it has produced solid buying opportunities (14 buys since 1998)
• There is almost always strength from the end of April in to early May – though it can be brief (16 out of 19 years)

Employment

The general tendency for April employment is to reverse the late March to early April price action either side of the employment report for somewhere between 5 and 14 days, with the caveat that there have been two recent Aprils (2007 & 2010) where the market just was STRONG most of the month.

• In 2016, the rally after the post opex decline ended on employment day April 1^st and the post employment pullback lasted to April 7^th
• In 2015, the market actually fell in to an April 1^st pre employment low and then rallied till opex Wednesday
• In 2014, the end of March rally ended on employment day, April 4^th and the market fell 84pts in 7 days
• In 2013, the market declined from Tuesday, April 2^nd in to employment day (Good Friday) April 5^th and then rallied for 6 days.
• In 2012, the SPX made a significant top on the first day of April and declined through the employment report until the Tuesday after and then bounced for 6 days before falling in to a Monday post opex low.
• In 2011, the market rallied until the Wed post employment (April 6^th) and then declined until the Monday post opex.
• In 2010 and 2007, the market rallies just continued
• In 2009, the minor top on the Thursday before employment lasted for 5 days and 31pts.
• In 2008, the market topped on the Monday post employment and fell 62pts over 8 days until an opex Monday bottom.

As the market is trapped between the 2322 low of March 27^th and the 2370 high of March 30^th, it is still too early to tell whether an April employment top or bottom is more likely

GOOD FRIDAY and a Holiday before opex week

Good Friday has a reasonably decent track record for turns. The last time there was no Good Friday turn was in 2011. The challenge with Good Friday is that the date moves around a lot and thus Good Friday does not provide a consistent pattern. Still, here are a few key points:

• There is no set consistency as to when the turns occur. The last 2 years have been pre holiday. The previous 3 had all been on the Tuesday post the holiday (when Europe re-opens)
• Good Fridays before opex week are rare. There have been 5 since 1998, but none since 2009.
• Most of the time, holidays before opex week are minor turns or no turn at all as the opex momentum is too great. Having said that, the bottom in February 2016 was two days before the beginning of opex week President’s Day holiday

 April Opex

Last year, I highlighted that the April opex period had the most pronounced tendency of ALL 12 opex periods to produce a buying opportunity. Of course, last year the market rallied strongly from April 7^th to April 20^th and then major topped on the Wednesday post opex! (and then declined for 4 weeks)

Still, the April opex tendency is still the April opex tendency as one year does not change 19 years of history. The buying opportunity is not always the most straightforward or obvious buying opportunity and frequently the buying opportunity is the product of a double opex turn with a peak during opex and a bottom post opex. Of course, in 2015, the market was unusual with a top on opex Wednesday and a bottom 40 pts lower on opex Friday.

• If the market falls directly in to opex from an early April top then the likelihood is for an opex week bottom. (Recent examples 2014 and 2013)
• If the market rallies in to opex week and then falls, the opex buying opportunity is almost always post opex (though it was opex day in 2015)

The important thing to remember about April opex is that there is almost always a turn with only April of 2007 being the one year that saw an April opex rally continuation.

ECB (Apr 27^th )   (FOMC is in May)

• The jury is still out for me on whether the ECB is a legitimate turning point catalyst. As the early March pullback did end on ECB day, March 9^th, and then the market rallied sharply, I will mention it here, particularly given the next point about the end of April rally, as the ECB day may be the catalyst for another rally

End of April rally in to early May

The period from the end of April in to early May almost always shows strength. The rallies can be brief and may just start on April 30th like in 2015 (from April 30^th to Monday, May 4^th) and 2016 (Friday, April 30^th to Monday, May 2^nd), but the only two recent years where this late April – early May strength was not observed was 2013 (which rather bizarrely had an odd 1 day reversal on FOMC day, May 1^st with a down open)

 Current Conditions

The current conditions are neutral. The SPX is in a reasonably narrow range and the RUT is trapped in a super trading range that really has lasted for almost 4 months.

Q2 TOPS

Since the bull market began, the market has had a pronounced multi week period of weakness that has started as late as May 23^rd, 2013 and as early as Monday, April 2^nd 2012, with one exception – which was 2014 – when the first true multi week period of weakness did not emerge until September. In 2016, there were two periods of weakness – a month post April Opex and the period post June employment until the post Brexit lows in late June.

• For this bull market, the March 1^st high is unusual. The only possibly comparative year is 2015, when the late Feb top remained unchallenged until a slightly higher high post May opex and then the decline started.

Bottom Line:

I delayed my April preview by a bit more than a day with the hope that the market would help provide some more clues as to its early April intentions might be. Alas, Tuesday’s inside day does not provide any new helpful information.

• Still, April should be remembered for the consistency of its turns for employment, opex and the end of the month
• Good Friday is more of a wild card as it is occurring before opex week begins
• Turns for the ECB have been observed recently, so one may occur around April 27^th – which also coincides with the end of month strength period.
• The end of April strength in to early May is a solid, though short term edge.

Overall, the market does seem to have normalized, but the turns like the March 1^st top or the Quad Opex top on Opex Wednesday are not quite what history would predict. For now, I will be watching the RUT 2014 analog closely as the SPX does look to be possibly following it.

Have a good month,

-D

Opex / post FOMC Comments for March 2017  (as of mid day on Opex day, 17-Mar-17):

Through Wednesday – even yesterday – the market conformed to the usual March opex pattern, but with the COMPLETE lack of volatility and what is currently a Wednesday opex week high, the market is acting a bit differently.

The market does not top that frequently on Fed Day. Last time was April 2016 (MAJOR TOP – Wed post opex and a 9 day 59pt pullback). Before that, there was the Thursday Fed day top on Opex Thursday in September 2015. Before that, one must go back to 2013. There have been 13 Fed day tops out of 52 tops (from 82 meetings) since 2007.

I have no strong and compelling evidence as to what might occur next. The standard March opex script given the rally from last Thursday’s pre employment bottom is a top of some sort late in opex week or post opex and then a pullback for at least a few days (The last three years it has been the Thursday post opex) and then a rally in to at least early April.

Here are my scenarios in terms of probability:

• Market tops post opex – given the market is just 12pts from Wednesday’s high and the market has tended to close strong almost every week since the rally started in November, this still seems probable.
• Market did top on Wednesday and it is headed lower with a pullback ending some time between the 23^rd (Thursday post opex has been the pullback low the last 3 years) and the end of the month
• Rally continuation – market pullback is minimal and the market continues going higher – this market has defied many naysayers, so a rally continuation can not be ruled out, though the last Quad opex rally continuation was in December 2003!

Other notes:

• St. Patrick’s Day (17-Mar) is almost always an up day. Since 1992, it has been up 19 times and down 4 times
• Please note the March reminders below – a significant top in March is rare and has not occurred since 2005.

Bottom Line

The market was a challenging one in January & February as it has not conformed to many of the usual turning points. This changed in March with the March 1^st top, the bottom last Thursday pre employment and the rally in to opex.

• A top of some sort and a pullback should now occur – if it did not on Wednesday.
• Then a rally in to April does seem likely – possibly one like 2012 – that saw a significant top on the first trading day of April, as March is just not a month for significant tops.   (One should be aware that overall, 2017 does have a lot of similarities to 2012.)

The lack of true volatility in the SPX has been challenging. The RUT continues to be the index that has provided the most two way opportunity in the market.

Below, I have posted a lot of additional historical information that might be helpful.

Have a good weekend!

-D

Detailed Research

Current Conditions                                      (as of mid day on Opex day, 17-Mar-17)

The SPX is still very MFI OB on a weekly basis – but this has not been a reliable predictor of market tops.

The daily and hourly condition are now neutral. There was an hourly sell signal on the Wednesday. The Wednesday opex sell signals normally indicate a strong market that will tend to top the next day or a few days later.

Currently, the high for the week is on Wednesday. In March opex (since 1998), this has only happened during the very volatile week of March 2008 (major Monday bottom). It has happened a total of 10 times in 76 Quad opex weeks since 1998.

• 4 MAJOR Bottoms (not relevant)
• 1 Rally continuation (Dec 2001)
• 4 tops on Opex Wednesday
  • Dec 2008 – 5 day, 69pt pullback
  • Dec 12 (Fiscal Cliff drama) – 9 day 70pt pullback
  • Dec 05
  • Sep 07 – 6 day 32pt pullback and then the final BIG Push in to the October MEGA top
• 1 MAJOR Top on Monday post opex (June 2000)
  • NOTE: There are some similarities to the current market. There was a pullback on opex Thursday and Friday and then a BIG surge on the Monday post opex and an 11 day 52 pt pullback

It has happened more frequently when including all opex weeks since 1998.

• 8 times out of 26 instances, the market topped post opex.

• 4 times the market continued to rally
• 14 times the market topped on Opex Wednesday. (8 MAJOR tops and 6 minor tops)

March opex Detail

2017 makes it the 6^th year in a row that we have rallied in to March opex week. The last 5 instances have all produced tops of some sort during the latter part of the opex period (opex Thursday to the Tuesday post opex), BUT all of the pullbacks have been reasonably short term – the longest lasting 6 days. Also, the Thursday post opex has seen the end of the last THREE post opex pullbacks.

• 1. 2007: MAJOR Bottom (FOMC post opex week) – Wednesday of opex week – rally lasted for 9 days and 71pts
  2. 2008: (FOMC during opex week) Major Bottom – Monday of Opex week – Rally lasted for 7 days and 97pts
  3. 2009 (FOMC during opex week) Major Bottom – Friday of opex week – was very hourly OS – Rally lasted for 6 days and 68pts
  4. 2010: (FOMC during opex week) Major Bottom – Monday after – really a dip from the post FOMC OB Wednesday minor top –then the market really took off   – Rally lasted for 35 days and covered 69pts
  5. 2011: (FOMC during opex week) MAJOR Bottom – Wednesday of opex week   Rally lasted for 21 days and was for 87pts
  6. 2012: (FOMC during opex week) Minor top – Monday after opex – just a 4 day 27pt pullback
  7. 2013: (FOMC post opex week) Minor top on Thursday of opex week and a 25pt pullback to the Tuesday after pre FOMC
  8. 2014: (FOMC during opex week)Minor top – Had FOMC week in it and we topped at Friday’s open, though it was a weird one, as we were down on FOMC day and then rallied all Thursday – nice headfake – Top lasted for 6 days and the market pulled back 43pts
  9. 2015 –(FOMC during opex week) MAJOR TOP on Monday post opex – (FOMC during week) – had gotten quite oversold in early March – bottomed on Wed before opex and rallied hard through opex day – then topped early on Monday post opex and fell hard till Thursday post opex – Market fell a total of 70pts
  10. 2016 – (FOMC during opex week) The second pullback from the SIGNIFICANT February bottom ended on the Thursday before opex week (ECB Day) and the market rallied strongly in to opex week. The market was up strongly on Fed day and the day after and then climbed at a slower pace before topping out on the Tuesday post opex and pulling back 35pts to the Thursday post opex (and pre Good Friday)

QUAD OPEX WEEKS

QUAD Witch option expiry has a BAD reputation – but it is actually a great time for traders. Interestingly, it is much more likely for QUAD opex to produce a MAJOR turn (move of greater than 50 SPX points) than a minor turn. Amazingly, there is an equal split between TOPS and BOTTOMS and turns of the major variety outnumber minor turns by close to 3 to 1.

Unfortunately, March opex is no longer producing as many MAJOR Turns and the two quad opex tops in 2016 were minor ones.

 March Reminders

Given the expectation of a significant top in the market, here is the historical perspective on whether a significant top – not just a Major Top and a pullback of 50 plus pts, but a multi week significant top:

• Since the 2009 bull market began, there have been NO significant tops in the month of March. All of the significant tops occurred in Q2, if there was one. (there was not one in 2014)
• Since 1998, there have been four significant tops in the month of March (2000. 2002, 2004 & 2005). So there is some precedence – two occurred post the employment report (2004 & 2005) and two occurred post opex / post FOMC (2000 & 2002)

COMMENTS (for the record) posted earlier regarding March opex week.

March 15, 2017 at 3:56 pm

Market is sticking to the standard March opex / FOMC script so far with the Tuesday low and now the rally in to the FOMC announce and Yellen’s press conference

With the strong up day, the market is similar to March 15 (+25pts on the day) and March 12 (+25 pts on the day) both of these had brief pullback tops on the Monday post opex.

In 2012, the SPX closed on Fed Day (a Tuesday) at 1396 (highs of the day) and topped on the Monday post opex at 1410 and then pulled back till the Friday at 1387 before rallying to a more significant top on Monday, April 2nd at 1422. (Market did not recover until it traded 1267 on June 4th)

In 2015, The SPX closed on FOMC day at 2100 and topped on the Monday post opex at 2115. It then fell sharply to 2046 on the Thursday post opex before chopping around until a rally from 2048 was ignited on 1-April.

There are a few other scenarios to consider, but given the SPX bottomed last Thursday (and the RUT yesterday), I would expect the market should remain bid for a few more days as Opex Friday has been the high of March opex week the last 3 years and 5 of the last 7.

March 2017 Employment Turning Point Preview  (as of late in the day on Thursday, March 9th )

The market breakdown to fresh lows for the week today sets up for a very interesting situation in the next few days.   Originally, I was going to provide all of the employment history and my usual info, but I think this preview will be better served by being short and to the point.

Per the March preview –

• EMPLOYMENT (Late report on Friday, March 10^th): Late employment reports almost always see rallies (15 instances since 2007). There have only been two instances when the market fell through a late employment report in to opex week (Jan 2009 & Jan 2016). This also fits with the market’s tendency to rally in to March opex week.

Current Conditions:

The MID and RUT have gotten quite oversold on an hourly basis and are approaching daily OS levels as well. They have both gone down MUCH MORE than the SPX.

The MID now has the hourly buy signal that I wrote about in the March preview

• The general tendency is for the market to rally a day or two after the next buy signal is generated. After that, the persistent bullishness tends to fade and the market normalizes. The only time the market really major topped without a sustained rally after a month without an hourly buy signal was in early August 2013.
• BUT, one challenge to the above statement is that the MID has an hourly buy signal on BOTH the Thursday before opex week and the Thursday before employment.
• *** In January, 2016, the MID had this same combination and the market sold off hard until the bounce on opex Monday, post employment.
• *** Overall, MID Hourly Buy signals on the Thursday before opex week are indicative of a market that will also be weak in to and likely during opex. The last two times there was a MID buy signal on the Thursday before opex week were May 2016 (Opex Thursday bottom – just less than 40pts SPX below the Thursday before opex week close) and Jan 16 – which clearly had the MAJOR bottom on the Wednesday post opex / post holiday.
• Hourly Buy signals on the Thursday before employment also have a mixed record. They do not happen that often either. The last time was Jan 16. Before that was Dec 15 (big up on employment day – but topped at the close and fell 100pts in just over a week.

As always, prior to an employment report or a big event when the market is making fresh lows, there are three scenarios.

1. Market bottoms on Thursday and rallies on employment day
   • Given this is the first correction of a MAJOR, sustained rally one just does not know what will turn the market. A rally is the standard March and pre opex play – but the risk is VERY High given the long rally
2. Market bottoms on employment day and rallies in to opex
   • This is the usual market play, BUT NONE of the 15 previous instances of late employment days since 2007 have had an employment day bottom
3. Market continues lower in to opex
   • This is what happened in January 2016. It would be unusual for March opex week as the market has only fall in to March opex week in 2011 and 2008 since 2007. BUT, the market in recent years has shown a bit greater tendency than previously to fall in to Quad opex week and then rally. (Sep 16 – Opex Monday bottom, June 16- Opex Thursday bottom, Dec-15 – Opex Monday bottom (Wild week!) June 15 – Opex Monday bottom)

Bottom Line

Risk is high here for fresh positions.

• If one is long from great levels – well done. Just keep managing the risk.
• If one is looking to get long or re-establish a long, the risk is high here. A rally is always possible at any time, but the historic probabilities lean right now, towards Quad opex week providing the best opportunity for a bottom and an oversold market rally.

The MID and the RUT are definitely the two indices that are the most oversold and will likely provide the most rally potential. As always, the BIG question is WHEN and the historical data suggest that opex is likely to provide the best opportunity.

Ever interesting,

-D

March 2017 Turning Point Preview (as of close of business on Friday, March 3^rd, 2017 ):

The following is my monthly turning point preview. It touches on important and interesting historical information about the upcoming month.   Apologies for being out of action for the better part of two months, I needed to focus on family matters.

Overall, since 2007, the month of March has been one for significant bottoms (2007, 2008, 2009 & 2011) and shorter term trading tops and bottoms. In March 2010, the market rallied almost continuously for the whole month. In 2012, 2013 and 2016, there were strong rallies with limited pullbacks and in 2014 and 2015, there were both good trading tops and bottoms.

I will admit – like so many commentators – that the persistent bullishness of the markets in January and February is somewhat surprising to me, but not totally. Given the condition of the market, I must admit history would have predicted a bigger pullback post opex and post the President’s Day holiday in February, but it did not happen. As almost all commentators have noted, there are a lot of unusual, but not totally unexpected or totally rare things occurring in the market right now.

The reason I write “not totally unexpected” is that Q1 and the month of July have been the two time periods during the year that can be the most persistently bullish.   Eventually, even in the most persistently bullish markets, turns do occur and the market normalizes and becomes more of a two way market. 2012 and 2013 are the two most recent years that share a lot of similarities to 2017. In 2012, the market normalized in early April (after one touch of the lower daily bollo in early March) and in 2013, the SPX had one touch of the lower daily bollo band in February and two in April before one really explosive move higher post April opex that ended post May opex.   It should be noted that 2012 and 2013 were the only two years since 2007 that did not provide good Q1 buying opportunities – other than the noted lower bollo band touches. 2017 has yet to provide any buying opportunities nor has the SPX approached its lower daily bollo band since the election.

Here are the March highlights:

• ECB: Thursday, March 9^th – The ECB meeting has been the cause of some decent volatility and turns, though there was just the rally continuation for the Jan 2017 meeting. In December 2016, the brief market pullback ended on the ECB day prior to the employment report. The post employment pullback in March 2016 also ended on the ECB day – the Thursday before opex week

• EMPLOYMENT (Late report on Friday, March 10^th): Late employment reports almost always see rallies. There have only been two instances when the market fell through a late employment report in to opex week (Jan 2009 & Jan 2016). This also fits with the market’s tendency to rally in to March opex week.

1. OPEX week with FOMC (Marcfh 14^th & 15^th with press conference):   There is a VERY strong March tendency to rally in to March opex week! There have only been three times since 2007 that the market has fallen in to opex week and all of these were because of “crises” 2007 (Asia Crisis), 2008 (Bear Stearns) and 2011 (Japan Tsunami). These are also the only three times that March opex has been a MAJOR bottom since 2007.
2. QUARTER END – There have been some turns around quarter end – but there is no consistent edge for them.

SPECIAL RESEARCH

1. MONTH without an hourly MID buy signal – There was NO Hourly buy signal in the MID in February. This is rare. There have only been 9 previous instances of months without an hourly buy signal in the MID since April 2009. The last time was in July 2016.   The general tendency is for the market to rally a day or two after the next buy signal is generated. After that, the persistent bullishness tends to fade and the market normalizes. The only time the market really major topped without a sustained rally after a month without an hourly buy signal was in early August 2013.
2. MAJOR TOPS in March – The last time the market saw significant tops in the month of March was in 2005. Since 1998, there have only been 4 significant tops in the month of March – 2005, 2004, 2002 and the MAJOR blow off top in 2000 on Friday, March 24^th.

 Bottom Line:

The market has definitely had an amazing run since the pre election bottom. The failure to have a pullback of some significance post the election is surprising, especially as the market has generally provided good buying opportunities in Q1 since 2007 with just 2012 and 2013 being the exceptions. 2012 and 2013 are also the two years that 2017 is currently most similar to.

• Both of those years did have late Feb / early March sell offs that resulted in buying opportunities at / near the lower daily bollo band which right now is at 2280 for the SPX.

Since 2007, the month of March has been primarily one for trading tops or significant bottoms. A significant top has not occurred since 2005, but long time traders will definitely remember the MEGA top on March 24^th, 2000.

• Right now with the market having had such an extended run since early November and with no MID hourly buy signal since January, a cautious approach to the market seems to be the most sensible option until there is either an hourly buy signal in the MID or there is a sharp multi day sell off.
• The market’s tendency to rally in to the March opex week AND the tendency for the market to rally in to late employment reports does mean that any sustained weakness particularly in to Wed, March 8^th or the ECB meeting on Thursday, March 9^th should provide a decent long side trading opportunity.

I will be back later in the week with a more in depth pre employment preview.

-D

March Employment – Late Employment Report

• Late employment reports tend to be bullish with the market tending to rally through the report. There have only been two instances since 2007 (Jan 2009 and Jan 2016) that saw the market fall through the employment report and in to opex. The full detail of the 14 previous late employment instances will be provided in the employment preview.
• Since 2007, there have been 3 previous late employment reports in March. March 2012 saw a pullback end on the Tuesday before, while March 2013 was a rally continuation. In March 2007, the market had topped in February during an Asia inspired mini crisis – the market bounced in to the employment report and then MAJOR bottomed on opex Wednesday.
• March employment is not always a turn, particularly since 2009 as there were rally continuations in 2010, 2012 (minor pullback ended on the Tuesday before) and 2013.
• In March 2014, there was a minor top on employment day and a one week 45 pt pullback
• In March 2015, the market topped at the close on Monday, March 1^st and fell in to a major bottom on the Wednesday post employment and then rallied strongly in to a post opex top
• In March 2016, the market topped on employment day and fell 40pts until the Thursday before opex (which was also ECB day – 2017 has the same calendar configuration).
• In the last year, all of the employment tops (Mar 16, Apr 16, Jun 16, Sep 16, Oct 16 and Jan 17) have been post the employment report either on the employment day (3 times) or the Monday after (once) or the Wednesday after (twice)

 Quad Opex and FOMC in the same week

• • Rally in to Opex Week – there is a VERY strong March tendency to rally in to March opex week! There have only been three times since 2007 that the market has fallen in to opex week and all of these were because of “crises” 2007 (Asia Crisis), 2008 (Bear Stearns) and 2011 (Japan Tsunami)

• When the FOMC meeting is during Quad opex week, there is a much greater than normal probability of a MAJOR TURN. This is particularly true in September and December, but the edge has diminished in March and June quad opex weeks to a certain extent – there were only minor tops in March 2013, 2014 and 2016. There was a MAJOR top and a 3 day 70 pt slide post opex in March 2015. In most instances, the primary FOMC / Opex turn occurs post the FOMC press conference.

• It should also be noted that in BOTH March 2015 and 2016 the post opex Market pullbacks were brief and BOTH ended on the Thursday post opex.

 First Day of March – Green Candle

Last Wednesday’s strong green candle was the 14^th occurrence for the first trading day of March out of the last 20. It suggests that March may follow its normal somewhat bullish course, BUT, given the pullback since Wednesday, the following March instances should be noted. They all had pullbacks for a few days before continuing in to opex week.

• 2015 – Strong green candle and all day rally, but that marked the early month high and the market fell until the Wednesday post employment and then rallied in to opex week
• 2014 – The market gapped lower on the first trading day and rallied strongly for two days. The RUT then made a multi month peak while the SPX stalled, made a high on employment day and fell the whole following week before rallying in to opex week.
• 2012 – Market pulled back sharply with 3 red candles and neared the lower daily bollo on Tuesday, March 6^th before late employment report and then the market moved sharply higher
• 1998 – Pulled back for 4 days from upper bollo band to 20 day MA

 Special Research – No Hourly Buy Signal in the previous month – There have only been 9 months since April 2009 that did not have an hourly buy signal.

1. Aug 2009 – It was 56 days between buy signals – The first signal occurred on Wed, 2^nd Sept right before employment this one was a brief 9:30am RSI signal after a 4 day 48pt correction and then the rally continued for another 2 weeks before entering a more normal period
2. Jan and Feb 2012 – It was 82 days between between the Dec 14^th opex buy signal and the Mar 5^th MFI signal – the market bottomed on Tuesday, Mar 6^th with a 9:30am RSI signal after a 4 day 36pt correction – it then continued up for another 13 days before the markets topped post opex and became more volatile
3. Feb 2012 See Above
4. Jan 2013: Went 55 days between 27-Dec signal and 20-Feb 2:30pm RSI signal – Initially, there was just a 2 day correction and the SPX actually bottomed the next day and then rallied sharply, there was subsequently a second RSI signal at the close on Mon Feb 25^th – market made slight new lows the next day and then rallied for 16 days before becoming slightly more volatile with a minor top on Opex Thursday– though no buy signals occurred in March 2013
5. March 2013: Went 37 days between the late Feb and early April buy signals. SPX topped on the Tuesday pre employment post Good Friday in early April and fell in to employment day, bounced and then made a final bottom in April opex
6. July 2013 – (49 days) AGAIN a long, long period between hourly buys – you would have been crushed by the one on the Wed of June opex week post FOMC…. But that was then the last one until the Wed post Aug employment. Again, there was a minor top post July opex that was good for 3 days and 25pts of weakness
7. June 2014 (50 days) – While the rally from May opex to the July employment report was not relentless, there were a few 3 day 25plus point pullbacks, it was persistent enough that all weakness was bought until the market peaked on July 3^rd. The early July top was the summer peak for the RUT and the MID and was the start of a one week 32 pt SPX pullback as well as the start of the July topping process
8. July 2016 – The market had had a panic sell off due to BREXIT in late June. The market then started a strong relentless rally in July that did not properly end until the Wednesday post employment in September. The August buy signal came on Aug 2^nd. The market did very little during August

SPECIAL Research – Significant Highs in March since 1998 and H1 since 2009-2016

Since 1998 and particularly since 2005, the month of March has been characterized by trading tops and a few MAJOR bottoms (2007, 2008, 2009, 2011, 2015) that occurred after weakness started in late February.

The four significant March tops since 1998 were as follows:

1. 2005 : SIGNIFICANT Top on Monday, March 7th (post employment) above upper bollo at 1228 – decline lasted till mid April – but a higher high was not seen until July 2005
2. 2004 – Friday, March 5^th – employment day – Significant top   – The final low from the March highs was seen in August 2004 and the March high was not exceeded until November 2004
3. 2002 – MAJOR TOP on Tuesday post opex – FOMC Day on March 19^th – This was the last great selling opportunity before the long slide in 2002 that finally ended in October 2002. The high was not exceeded until November 2004
4. 2000 – Friday, the 24^th – way above upper bollo after a 9 day surge (FOMC was on March 21^st) – This was the last blow off top of the 1999-2000 bull market. The initial fall lasted until mid April – but clearly the market went a lot lower for a long time. Tope was not exceeded until 2007!Significant H1 tops since the 2009 bull market began

• 2009: Employment day in June – till post employment and post holiday in July
• 2010: 2 days before FOMC in late April then FLASH Crash and a fall in to early July
• 2011: Start of May until middle of June opex
• 2012: 1^st trading day of April until post employment in June
• 2013: Wednesday, Post May opex to Monday post June opex
• 2014 – None
• 2015 – Wednesday post May opex until Monday, post August Opex
• 2016 – None – while Brexit produced a sharp drop in late June, the market recovered quickly, so it was not a significant top

January 2017 Turning Point Preview (As of close of business on Tuesday, January 3^rd):

The following is my monthly turning point preview that touches on important and interesting historical information about the upcoming month.

January is really a hit or miss month for the Turning Points. In 2014, 2015 & 2016, the market had substantial volatility with significant turns either side of opex week as well as at other times during those months. Similar post opex turns were also seen in 2008, 2009 and 2010. While in 2011, 2012 and 2013, the market generally had strong, fairly persistent rallies with limited turns. In fact, the SPX never even touched its 20 day MA in either 2012 or 2013 and it just had two brief touches of it in 2011.

Right now, there are no pointers as to what might be in store for January 2017, so we will just need to see how the month evolves.

Here are the January Turning Point highlights:

 Employment Report

Starting in 2010, the January employment report has been characterized by short term turns lasting just a few days or rally continuations. Effectively, there is NO EDGE for the January employment report, especially as it frequently occurs on the second Friday of January, though not in 2017

• In 2016 (late report), it was a Monday after to Wednesday after deeply oversold 50pt rally.
• In 2015 (late report), it was a 5 day 79pt employment day top and pullback in to Opex week.
• In both 2013 and 2014, there were just very short term – minor tops on employment day.
• In both 2011 and 2012, the SPX saw rally continuations.

The last 4 employment reports have all produced significant moves. In November (employment day) and December (day before), the market produced significant bottoms. While the September report (Wed after post holiday) and October report (Mon after) produced sharp, short pullbacks of 69 (Sep) and 55pts (Oct)

 For now, the expectation is that any move around the employment report is most likely due to the technical condition of the market than anything related to January’s specific employment report tendencies.

 MLK holiday (during opex week)

When the market is closed for the MLK holiday on opex Monday, ALL of the historical edges for both January opex and the MLK holiday (generally a turn post opex and post holiday) disappear.

• There have been 7 instances of the MLK holiday occurring on opex Monday since 1998 and there was only 1 MAJOR Turn – a MAJOR Top on the Friday before the holiday in 2000.
• In 2012, 2006 & 2001 the market continued to rally
• In 2011 and 2007, there were very short term tops that were more related to opex dynamics than the holiday
• The same goes for the brief post holiday bounce in 2005. (The market bottomed post opex)

Overall, holidays in 2016 produced a substantial number of turns – generally post holiday (except for the Thursday before MEGA bottom in February), but given the MLK during opex week history, there is no edge for this particular holiday in 2017.

 January Opex Week

While January opex week has a history of producing a lot of significant turns, most of these have occurred on Opex Friday (2015) or post opex (2008, 2009, 2010, 2014 & 2016) when the MLK holiday has been post opex.   With the MLK holiday on opex Monday, the January opex edge disappears.

Opex did produce its share of MAJOR turns in 2016 with four MAJOR bottoms in January, May, June & September, as well as two MAJOR post opex tops in April and October, so a significant turn is possible, but it is not as likely given the history of MLK holidays occurring during opex week.

 Central Banks: FOMC – Jan 31^st / Feb 1^st (no press conference) and ECB – Thursday, the 19^th

• The FOMC meeting is actually a Feb 1^st event in 2017, so there will be no January event.
• The ECB meets on Opex Thursday, Jan 19^th. Up through March 2016, the ECB meetings did seem to help create some significant market moves, but since the post ECB meeting bottom & rally in March 2016, the ECB meetings have had very limited apparent market impact.

Other Observations

• The December price action with the pre FOMC top on opex Tuesday has continued to follow the price action referenced in my December holiday preview that was seen in December 2005 & 2006. In 2005 and 2006, the market saw weakness until hitting the lower bollo band in January and then the market rallied (quite quickly in Jan 06 and more slowly in Jan 07)
• Post Christmas holiday tops,: While the post Christmas holiday weakness may have ended pre the New Year’s holiday (similar pullbacks were seen in 2009 & 2010 ) at 2234, it should be remembered that the market topped post Christmas in both 2014 & 2015 and the market was weak for most of January in both of those years. For now, 2234 will be an important level to determine whether last week’s weakness was just a brief pullback or whether it is something potentially more significant.
• Since 1998, There have been 9 Decembers that saw the SPX close above the upper bollo band at some point in December. Other than 2003, the market did see some weakness at some point after these periods. The three most recent occurrences were in 2013 (stayed elevated until declining sharply post Jan 14 opex week), 2012 (declined from opex Wed to Dec31st at the 200 day MA) and 2009 (same as in Jan 2013 – sharp decline – post Jan 2010 opex)
• The Presidential inauguration is held on January 20^th (opex day), There was no noticeable inauguration impact in 2013. The market did bottom post opex on Jan 20^th in 2009 and on Monday, Jan 24^th in 2005. In 2001, there was an all month rally until Jan 31^st, and there was no weakness around the inauguration.
• The current technical conditions are neutral and provide no edge.

Bottom Line

The market pullback to 2234 on Friday, Dec 31^st did release some of the pressure that I had noted in my Dec 22^nd holiday preview. It is too early to tell whether that was enough of a pullback in time and price or whether further weakness in both time and price is needed.

• Unfortunately, the history of the month of January since 1998, especially with the MLK holiday during opex week offers few clues and limited turning point edges this month.
• The post election rally and the December price action were unusual, but again with the pullback till Dec 31^st, the market has followed the pattern that was seen in other Decembers that were strong in to opex week has now been followed as those other months did also see some month end weakness.

For now, my expectation is that while it is possible the traditional turning points of employment, the MLK holiday and opex will contribute to market turns during this month, I think it is equally, if not more likely that market technicals and sentiment will be more of a driving factor this month as none of the turning points at this point in time offer particularly strong probabilities.

If the market does hit an extreme that might provide an edge either pre or post the employment report, I will provide an update, otherwise I expect to be fairly quiet this month given the limited historical edges of the turning points for this particular January configuration.

ALL the BEST for 2017!

-D